Are you living paycheck to paycheck, worrying about debt collectors or finding it impossible to make ends meet?
If you are experiencing financial challenges, you’re not alone. Whether your debt is the result of an illness, unemployment, or simply overspending, it can seem impossible to manage.
A lot of people in this situation take out a second mortgage or home equity line of credit, which may solve your immediate problem and allow you to consolidate your debt. But these loans require your home as collateral and if you can’t make the payments, your home is at risk of being repossessed.
And if you have not changed your spending habits, chances are that second mortgage or home equity line of credit will provide temporary relief but it won’t be a long-term fix.
Financial issues don’t happen overnight—they creep up gradually. If you have drifted into a situation where your finances feel out of control, the best thing you can do is get them under control before they spin into a full-blown disaster.
If you are behind on some bills, talk with your creditors. They may be willing to work out a modified payment plan and the more proactive you are about contacting them, the more likely they are to help. Be persistent and polite. Have good records of your current finances, so you can clearly explain your situation and propose a solution. Your goal is to work out a modified plan that reduces your payments to a level you can manage.
If your creditors are not willing to work with you, bankruptcy may seem like an easy fix, but it is not. A recent major change to the bankruptcy laws requires you to get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief.
Most reputable credit counselors are non-profit and offer services at local offices, online, or on the phone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs. Your financial institution, local consumer protection agency, or friends and family may also be good sources of information and referrals.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. The counselors discuss your entire financial situation with you, and help you develop a personalized plan to deal with your financial challenges.
An initial counseling session typically lasts an hour, with an offer of follow-up sessions. A reputable credit counseling agency should send you free information about itself and the services it provides without requiring you to provide any details about your situation. Avoid organizations that charge for information. If a firm does that, consider it a red flag and go elsewhere for help.
You can find a state-by-state list of government-approved organizations at https://www.justice.gov/ust/credit-counseling-debtor-education-information This is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. This page has many resources from credit counseling to debtor education to frequently asked questions.
Once you’ve got a list of counseling agencies in your state, check them out with your state Attorney General and local consumer protection agency, which can tell you if consumers have filed complaints about any agency. But even if there are no complaints about them, don’t consider it a guarantee that they’re legitimate.
After you’ve done your background investigation, you will want to interview several credit counseling agencies. Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation.
Find out about their fees—either an initial or monthly fee and get a specific price quote in writing. Check out any formal written agreement or contract and never sign anything without first reading it and understanding it.
Check out their qualifications to be sure they are licensed in your state and see if they are accredited or certified by an outside organization, then check out the certifying organization thoroughly.
Ask about confidentiality. What assurance do you have that your personal information (including address, phone number, and financial information) will be kept confidential and secure?
Find out how the employees are paid. If they are paid more if you sign up for certain services, or if you pay a fee, or if you make a contribution to the organization, consider it a red flag and go elsewhere for help.
Beware of any organization that tells you it can remove accurate negative information from your credit report, because legally, it can’t be done.
Once you have worked with the counseling agency to develop a plan, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the credit counseling organization.
Make sure the organization’s payment schedule allows your debts to be paid before they are due each month. Paying on time will help you avoid late fees and penalties. Review the monthly statements from your creditors to make sure your payments were received and applied properly to your account.
If your debt management plan depends on your creditors agreeing to lower payments or eliminating interest and finance charges, or waiving late fees, make sure these concessions are reflected on your statements.
The best advice we can give you is to stay on top of your finances on a regular basis and don’t let your spending habits and debt overwhelm you.
Sirach 20:11 tells us “A man may buy much for little but pay for it seven times over.” Paying seven times over may refer to the interest we pay on debt. We can also pay seven times over when we are overwhelmed by financial stress, and we lose our peace of mind!
If you have ANY inkling that your finances are headed for disaster, address problems as soon as you see them coming. The longer you wait to get your finances under control the more of a mess you’ll have to clean up.
One of the most important things you can do in tackling a financial problem is to pray. If you are married, both of you should pray together on a regular basis for the strength and wisdom to be good stewards of the blessings God has given to you.
Join us on the Compass Catholic podcast for a conversation about addressing a financial disaster.