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Financial Briefs

 

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Seven Steps To Digging Your Way Out Of Deep Debt

If you owe a lot of money to multiple creditors, it’s easy to feel your situation is hopeless.  Yet while digging out of a mountain of debt is never easy, taking a systematic approach may help you make progress.  These seven steps could be part of an effective action plan: 

1.  Conduct a personal inventory.  Figuring out how and why you fell into debt can help you work your way out of it.  But that requires a thorough examination of your personal spending and saving habits.  In addition, you’ll need to determine the amount of funds you have at your disposal, including cash or cash-equivalent assets on hand and other investments that you might liquidate.  Doing a complete accounting of your finances could help you build a solid foundation for a plan to reduce what you owe.

2.  Cut back on credit card spending.  It’s so simple to use a credit card—and all too easy to inflate account balances with a splurge at the mall or too many online purchases.  If you can resist the impulse to buy the latest cool gadget or this season’s pricey outfits, you’ll keep your financial situation from getting worse and free up cash to start retiring your debts.  That doesn’t mean you never can take advantage of a credit card’s convenience, but it does mean training yourself to buy only what you can afford.

3.  Warn your creditors if a payment will be late.  If you know you won’t be able to make a credit card payment on time, be proactive and call the creditor.  You may be surprised to find that many banks and retailers will be willing to work with you to resolve issues in a reasonable manner, perhaps waiving late fees or even giving you a break on interest rates if you show them you intend to pay what you owe.  It’s much better to be honest about what you’re able to do than to try to dodge bill collectors.

4.  Prioritize your payments.  It’s natural to pay the bills you can afford to cover and leave others until later. But you may be better off if you look at the big picture and focus first on reducing credit card or loan balances that carry the highest interest rates.  You might set a goal to pay down a specified amount of high-interest debt each month, making only minimum payments on other accounts.  Once you’ve retired the most costly debts, you can pick up the pace in reducing other liabilities.  That approach could save you a lot of money in interest charges and leave you with more cash to apply to other bills.

5.  Try to pay your bills before the last possible day.  When you don’t have much cash on hand, you’re not likely to write a check for a particular bill until you have to.  But waiting until the last minute can bring its own problems.  A payment you mail may not get there in time, and then you’ll owe a late charge, or a creditor may be able to increase the interest rate you have to pay.  Being late also can damage your credit score, making it tough to get additional loans at reasonable rates.  So do what you can to make sure your payment is received and credited before the due date.  Paying online or by phone may speed up the process, but make sure your creditors don’t charge for that convenience.

6.  Consider bankruptcy only as a last resort.  If your best efforts to get out from under a mountain of debt don’t seem to be doing the trick, you may consider declaring bankruptcy.  Yet while that could provide some relief, it may not do as much as you had hoped, and the long-term financial effects can be profound.  Your reputation will suffer, and borrowing money in the future could be difficult, if not impossible.  Consult with an attorney and make sure you understand all of the repercussions of bankruptcy before taking this drastic step.

7.  Watch out for scam artists.  When you’re struggling to pay off debts you may find yourself especially vulnerable to pitches from people or companies promising quick fixes to your problems.  But most seeming shortcuts will do little to help.  Avoid services that require up-front fees or voluntary contributions.  Also be wary if someone tells you to stop communicating with creditors or asks for your confidential information before doing anything to help you.

Of course, that’s not to say that every debt management service is out to rob you blind or sell your private information to the highest bidder.  There are plenty of reputable companies that may be able to provide valuable assistance, but it pays to be careful in choosing help in this area.  Please don’t hesitate to contact our firm for advice.



INDEX
  • Getting A High Tax Grade For Higher Education Credits
  • How Social Earnings Taxation Has Changed
  • Why Aren't More Millennials Moving On Up And Out?
  • Taking Socially Responsible Investing To The Next Level
  • Don't Be Caught Red-Handed By The Wash Sale Rule
  • Leading Economic Indicators Hit 10-Year High
  • Avoid These 6 Mistakes In Stretch IRA Planning
  • More Flexibility Allowed In Flex Spending Accounts
  • Individual Bonds-Ugh!
  • Set Aside The Funds One Might Need For A Rainy Day
  • Protect Against Possible Terrorist Attack
  • U.S. Leading Economic Indicators Rose Again
  • Fed Chair Strikes A More Cautious Tone, But Still Expects Moderate Growth
  • Count Off 3 Tax Breaks For Higher Education
  • Don't Be Victimized By These 10 Common Scams
  • Retirement Plan Choices For The Self-Employed
  • New Law Says Tax Debtors May Lose Their Passports
  • Compare Minor's Account To 529 Plan
  • Are You Being Socially Responsible?
  • 8 Smart Moves For College Grads
  • Seeking Financial Aid: Don't Fear The FAFSA
  • New Baby? Consider An Education Savings Plan
  • HOW THE IRS RESOLVES AN IDENTITY THEFT CASE:
  • 3 Ways To Deduct Mortgage Interest
  • HOW THE IRS RESOLVES AN IDENTITY THEFT CASE
  • Understanding Deflation
  • Don't Play Up Super Bowl Outcome In Stock Decisions
  • When Should Millennials Start Retirement Saving?
  • Have Your Child Kick Into A Roth With A Reward To Boot
  • Sizing Up The Energy Boost To The Economy
  • A Stock Plunge Amid Strong Economic Data
  • 14 Top Year-End Tax Moves For Individuals In 2014
  • Drill Down For Three Key Oil And Gas Tax Breaks
  • When It Pays To ID Security Sales
  • GDP Growth Data Masks Strength Of The Recovery
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  • UNDERPERFORMANCE/OVERPERFORMANCE
  • S&P 500's New All Time High Wednesday Will Probably Continue Over Upcoming Months, But Other Indexes Are Struggling
  • U.S. Stock valuations are within the top 10 valuations of all time but probably won't crash. Why?
  • Seven Steps To Digging Your Way Out Of Deep Debt
  • 5 Steps To Protect The Digital Assets You Own
  • The Long-Term Fiscal Status Of The United States
  • Margin Debt At Record Levels
  • What To Do When You're Suddenly Widowed
  • A Common Error In Powers Of Attorney
  • Should You Move To A Different State?
  • Tax Cost Of Being Your Own Landlord
  • Why Do GRATs Remain In Such High Demand?
  • Don't Wait To Harvest Your Losses
  • The Best States To Move To For Tax Purposes
  • 10 Reasons For The IRS To Flag Your Return
  • Many Women Face Special Challenges As Retirement Nears
  • Nine Reasons To Consolidate Debt
  • Straight Talk About Living Trusts
  • SEPPs From An IRA: Don't Change Horses Midstream
  • New Regulations Fill In Gaps On 3.8% Surtax
  • Do You Know Life Insurance Basics?
  • Top Income-Earners Drive U.S. Economic Growth
  • Give IRA Cash To Charity: Heads You Win, Tails You Win
  • Four Wash Sale Strategies To Help Clean Up Taxes
  • College Savings: How Much Do You Need Each Month?
  • Surprising New Research: Large Caps Top Small Caps
  • Newly Widowed Face 401(k), IRA Options
  • Retirement Saving Takes Time And Must Be A Priority
  • Divide-Conquer To Convert To Roth IRA
  • What Is Probate And What Does It Protect?
  • A Research Surprise On Bond Funds
  • After New Tax Law, Do You Still Need A Bypass Trust?
  • Start Estate Planning For Your Child Now
  • Seven Tax Ideas To Use Throughout The Year
  • A Comprehensive Way To Plan For College Savings
  • Bulletproofing Your Will Before Death
  • IRS Mercy on 60-Day IRA Rollover Error
  • Feds Warn Of Life Settlement Dangers
  • Know The Tax Rules On Charitable Gift Deductions
  • IRS Ruling Boosts IDTs as Estate Planning Technique
  • A Defined Benefit Plan Lets You Sock Away Large Amounts If You Can Overcome Some Obstacles
  • Economic Shifts Bring New Pitfalls And Prizes
  • Evaluating Great Companies
  • Inflation Versus Deflation
  • Jeremy Grantham And Lou Stanasolovich Discuss Market Valuations
  • Ramifications Of A Weakening Dollar
  • Secular Versus Cyclical Bear Markets
  • Small Business And Work Opportunity Tax Act
  • Time To Plan For Estates, Wills, & Trusts



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