What To Do When You Are In Debt

We live in a debt happy world. It is startling that nation after nation can watch it’s national debt spiral, but for the average person, if we allow our debt to spiral, we end up in a financial tailspin that is hard to break out of. Is there an answer for the average family? The answer is emphatically YES. You owe it to yourself and your family to know what to do when you are in debt.

First look at the cause. It actually isn’t too hard to figure out. Debt occurs when you spend more than you make. You should also consider the type of debt you have. There is secure debt. This would usually consist of a house and a car. These are secure because the loans for those items are tied to the items themselves. There is also unsecure debt. This would be the rest of your debt and may include other things but for most of us, this is where credit cards come in. Often we find ourselves wondering what to do when you are in debt because of our credit card spending habits.

Second, determine what you can do. To begin with, look at two options. You can increase your income or you can decrease what you spend, or you can do both. Often increasing income is a difficult task. At one point in our lives, I was working three jobs at one time to pay the bills. At the same time, we got rid of cable TV, limited our travel to cut down on gas expense, reworked our insurances with higher deductibles to lower our premiums, and started clipping coupons to save on groceries. In other words, we did both. So when trying to determine what to do when you are in debt, you must balance your income with your expenses.

Third, you must change your spending habits. The philosophy of wanting it and getting it now must change. Cut up your credit cards. One popular financial guru would say put them in the bender. Destroy them. You don’t need them. If you must, keep one for emergencies like renting a car, which is very hard without a credit card. Do not, however, keep it in your wallet or purse. Put it in the freezer. It will have to thaw before you can use, thus giving you time to consider whether or not you really NEED that purchase. Use your debit, write a check, or pay cash. Stop buying with money you do not have. This is a priority on your list of what to do when you are in debt.

Fourth, you should determine how you will eliminate your debt. Regardless of how you do this, you must put as much money as you can toward your debt elimination plan. You can snowball your debt, which is a method of paying off every debt in turn based on the amount owed and the interest, taking out the most expensive debt first. This is the best option if you can make your payments. You can do debt elimination. There are many companies who promote this. They claim they will settle your debt for pennies on the dollar. they do, but they charge you a hefty fee and they don’t stop the phone calls, letters, and other collection methods. You can do this yourself and not pay them a fee. You can do debt consolidation. This is my least favorite option. Most people borrow the money for debt consolidation and pay off their credit cards, but then start using them again. You end up not only having the credit card debt, but also the payment of that debt consolidation loan you thought would solve you problems. This is not what to do when you are in debt.

Nothing is going to happen, however, until you determine to make it happen. Determine what to do when you are in debt. Develop a plan. Follow the plan. You don’t have to pay some else to help you do once you determine what to do when you are in debt. What you need is the discipline to execute the plan you develop.