To begin with, being in debt these days is not something to be ashamed of. Today, people, companies, and even nations are finding themselves caught in a debt spiral that has resulted in ever-increasing debt loads. Indeed, as of June 2012 the United States had a public debt of $15.85 trillion. This is NOT to say, however, that you should just accept being insolvent and continue buying on credit. Rather, recognizing that others are in the same boat can take off some of the initial edge that may come with having to change your lifestyle to fit your budget.
For some, bankruptcy may very well be the best solution for dealing with debt that has gotten out of control. However, in many cases, bankruptcy could have been avoided had the person been aware of other options available like an attorney negotiated debt settlement. Being able to spot these early warning signs of financial trouble may allow you to seek assistance before it’s too late.
Consolidating Debt to Avoid Bankruptcy
In theory, debt consolidation, the process of bundling together debt and refinancing it at a lower interest rate, is not a bad idea. In practice, however, many people end up in an even worse financial situation within a few years (or months) after consolidation. As soon as the monthly payment goes down and the cash flow is less restricted, the spending inevitably goes up. If you have a borrower’s mentality (ie. You have your whole paycheck “spent” before you get it every two weeks), you are particularly at risk for falling into a debt spiral with debt consolidation. After all, it does involve taking out another loan, and you need to get away from that mindset if you’re ever going to find financial clarity.
Moreover, debt consolidation only prolongs the pain of debt by digging a deeper and longer hole. At the end of the day, debt consolidation is just another loan and you will likely end up spending more money in the long run because of the longer term of the loan and more total interest.
Making Interest-Only Minimum Payments
If you find yourself with wiggle-room in your budget and you’re still making your regular minimum payments on your credit cards/mortgage/financing each month, you may have a problem. Although all cards are slightly different in how they calculate minimum payments, generally speaking, these payments can be as low as finance charges plus 1% to 4-5% of the balance. Put another way, if you’re lucky, half of what you pay will actually go towards paying down your balance.
Obviously, you won’t be able to pay your balance in full every month. Nor does anyone expect you to pay more than the minimum every month. But if you get in the habit of sending more than the minimum when and where you can, you’ll not only shave years off your repayment plan, but you’ll save yourself thousands in interest in the long run. At the end of the day, however, making the just the minimum monthly payments is only prolonging the inevitable. It’s just buying you time. But time for what? Unless you win the lottery or significantly increase your income, which most people can’t do on a whim, you are going to have to deal with the mounting debt sooner or later.
Our debt settlement attorneys are skilled at negotiating a large reduction in your debt, including principal and interest, allowing you to settle & eliminate the debt for a fractional amount, without bankruptcy.
Essential Budgeting Skills
Making a budget will help you get a clear sense of where you stand financially. Beginning with the basics – if you spend more than you earn, you will end up in financial disaster. The biggest budgeting mistake people make is not calculating every single dollar they spend. Everything adds up, no matter how small it is. To put it in perspective, take your daily trip to Starbucks for instance. If you spend $3 at Starbucks everyday, that’s $21 a week, $84 a month, and $1,092 a year.
You’ll of course need to determine your income in order to make your budget. When calculating your income, don’t count anything that’s not absolutely guaranteed (ie. Bonuses, commission, overtime).
Do You Have Any Emergency Funds?
According to financial experts, you should have at least six months’ worth of expenses in a savings account with readily accessible cash to be prepared for any emergency, like job loss. In light of the fact that the average unemployed American is unemployed for 27 weeks or longer, experts are urging consumers to save nine moths to a year of income, if they can. Unfortunately, most don’t.
Do Not Ignore Your Debt Problems
One of the most common signs of denial is continuing to purchase things you can’t afford. (You’re not alone – almost half of American families spend more than they earn each year.) Aside from living beyond your means, denial can mean not checking your bank statements, or refusing to open mail from creditors, etc. Another, less common sign that you may be in denial is if you find yourself lying to your spouse or other family members about how much something costs or what you’ve recently purchased. As mentioned above, a budget can keep you accountable with your spending, and create transparency in the relationship.
But one of the best ways to avoid bankruptcy is through a negotiated debt settlement. McCarthy Law is committed to helping its clients get out of debt once and for all. The debt settlement process is usually quicker and less expensive than a Chapter 13 bankruptcy. For more information on how to avoid bankruptcy, give us a call today and set up an appointment for your free consultation with a lawyer.
Kevin Fallon McCarthy
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