Are you caught up on Budget 101? If not, check out the previous Budget 101 posts.
Last week I also sent out the budget template via email. (It is also available for everyone who signs up for email updates. If you sign up for email updates access to the budget template will be emailed to you automatically.)
So, hopefully, you have taken some time to get the budget template downloaded and personalized for your situation.
While the budget will help you to manage your debt and to begin eliminating outstanding debt, if you have excessive debt then you are going to need to take a little more action to reduce the impact this will have on your life, your credit score and your entire financial future.
I think of excessive debt as more than just a car payment and small credit card balance. If you have many creditors that you owe money to, that is excessive debt. If you have one credit card with a super high balance, that is excessive debt.
If you have excessive debt then you should probably reach out to contact them and try to work out some deals were you can pay them off in installments over a period of time that is manageable.
This will be one of the more important steps in this process, but it is a necessary one. And, you will feel so much better once you face the elephants in the room
This happened to me in a credit card situation about five years ago. It was terrible. They raised my interest rate so I refused to pay 26% interest. The calls wouldn’t stop. Finally, I got on the phone and told them they could ruin my credit, but I would not pay them anymore. They gave me a four-year deal and offered me 0% interest if I had the payment taken directly out of my accounts. Of course, I signed up and that credit card was paid off last year. The deal was that I could not pay the debt off any earlier, I just had to keep the auto-payment going. It was a deal I could not pass up.
Sometimes creditors just want some money coming in and they are willing to work with you.
If you’re already paying installments then they might need adjusting so you can handle them more easily.
Your budget should have the details of all of your outstanding debts and the amounts that you pay each month. With this information you can work out accurately how much you can afford to pay, and then present that to your creditors to see if they will allow payments at a reduced rate.
Expect your creditors to try to pressure you into higher payments, but be straight with them and tell them that your budget only allows for a specific amount to be paid per pay period. More often than not, they will agree to it knowing that the debt will get cleared in that manner.
And, finally, if worse comes to worse and you really can’t afford to pay off the excessive amount of debt that you have built up there might be no alternative but to file for bankruptcy. You will need some professional advice as to when and how to do this as it can make the difference between eliminating your debt completely or alternatively giving you three to five years to pay off what is owed.
I do not recommend filing bankruptcy, and have no personal experience with it, but I know that it can really hurt your credit score long-term. Sometimes it is necessary, but be sure that you have tried everything else first and that bankruptcy is your very last option.
In the next Budget 101 post, I talk about your credit score and the impact that debt, excessive or not, has on it. Also, don’t ever pay for access to your credit score because you can get your credit score for free.
If you’re looking for my budget template, you will gain immediate access when you sign up for email updates.
Disclaimer: I am not a financial professional and don’t play one on tv. The information provided on Single Mom on a Budget.com is my own opinion and should not be construed as fact or advice, and you follow it at your own risk. You are responsible for your own personal finances and should not rely on this site to make the final decision for you. This blog is my means of communicating my experiences to you and to prompt you to think and consider your own situation, but you are 100% responsible for any actions you take. Always consult an attorney or tax professional regarding your specific legal or tax situation.