Putting together a list of your debts and available income
The first step to tackling debt repayment is to know what you owe! Start by making a list of the different types and amounts of debt you currently have. You need to see all this information in front of you so you can properly assess where you stand. You can include an amount as small as owing your friend $5 for a coffee or as large as your mortgage.
Reorganize your debt information in either a spreadsheet or a notebook. List the type of debt, the name of the creditor, the payment amount, the due date, the interest rate or annual percentage rate (APR), and the total amount still owed. Be sure to total what’s owed, so you can see the big picture. If an account has a minimum payment due or a payoff amount listed anywhere, you can add it as a note.
Then, for each debt, make a note of the following:
- Whether the debt is secured or unsecured: Both can be harmful to your credit if you don’t pay, but the type of debt is important because secured debt usually means that you have some type of collateral the lender can confiscate if you don’t pay the debt on time. The collateral can be vital to your and your family’s survival if it’s an auto or home loan. Unsecured debt has no collateral at stake. An unsecured debt is a credit card or other unpaid bill. If you’re late, they’re not happy but nothing is repossessed or foreclosed on. Try to prioritize debts within the two categories.
- The company the debt is owed to, the amount owed, and the due date for payment: If you haven’t made payment arrangements, make a note of that, too.
- Any consequences related to the debt: A consequence may be a garnished paycheck or the threat of a suspended driver’s license. You can even go so far as to say that any tension between you and a friend or family member over a loan is a consequential issue.
Using the budget or spending plan you developed earlier, allocate your net income after basic living expenses to each debt in priority order. Start with secured debt and then spread what’s left over your unsecured debts.
Tips for managing your debt repayment plan
Here are a few tips to keep in mind when you’re reviewing your debt and your plans for debt repayment:
- Check your budget/spending plan to know the amount you can pay toward each debt. Don’t promise an amount you can’t pay.
- Make a list of debts you want to negotiate. You don’t have to wait for your debt to end up being turned over to collections to negotiate with your creditors.
- Know your rights. Before you speak to any debt creditor or collector, be aware of the questions they can and can’t ask. Also, beware of illegal debt collection practices, such as contacting you by phone after you’ve asked them to stop.
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Call your creditor or collector. Use the following phone script for reference:
My name is [insert your name], and I am calling to discuss my current account status. I am currently facing an unforeseen financial hardship that has affected my finances, including this account. I would like to see what we can do to help bring/keep my account to/in good standing. Can we discuss what my options are? Is it possible to arrange a payment plan?
If you’re arranging a payment plan, always be sure to get it in writing and don’t offer to pay more than you can realistically afford based on your current budget.
- Make sure you get any concessions or settlement agreements in writing. Before you agree to terms or send any money, ensure you’ve received the debt repayment agreement in writing, even if that’s email, from the creditor or debt collector. Also document what time your phone call took place and to whom you spoke.
- Stick to the repayment plan. Follow through with your end of the agreement. If you don’t, the lender may place your account in collections (if it hasn’t already). If you break a settlement agreement with a collector, they can then decide that you must pay the full amount, and they probably won’t be willing to work with you on a settlement again.
Finding free help for getting out of debt
Many ads promise better credit and relief from debts, collectors, and even the Internal Revenue Service (IRS), but only two sources provide truly helpful, truly free assistance for those with credit or debt problems:
- Nonprofit credit counseling agencies: Good credit counselors are free, HUD and bankruptcy certified, take the time to tailor solutions to your situation, and are well trained. Their mission in life is to help, pure and simple. The main things they deal with are goal setting, identifying the sources of problems and solutions, budgeting (the foundation of everything financial), and managed debt repayment plans. Note: HUD stands for the U.S. Department of Housing and Urban Development.
- Pro bono lawyers: Because credit and collections are governed by laws, and because life isn’t always fair, the time may come when you need an attorney. But if you’re broke or quickly getting there, paying for an attorney may not be possible. Pro bono lawyers really do exist and they really do work for little or nothing.
