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Here Is What To Do If You Have Debt In Arrears

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This article is a response to a reader’s question about paying off debt on an irregular income. They write:

Can you advise me how to manage to settle my absa loan & credit card because they are in arrears

At my work I earn with commission , sometimes I didn’t earn.

Here is my answer:

Being in debt is a challenge. It takes away money you could use for more productive things. It’s even more difficult when you’ve missed payments and your debt is now in collections. If that’s you, here are some tips to help you settle your debt that’s in arrears.

Pay down debt

Utilize some debt repayment strategies.

Debt snowball – pay your smallest balance first while making minimum payments to your other debts. When you pay off your smallest balance, move on to the next smallest balance. As you get rid of debts, you’ll be able to make larger payments to the following debt.

Debt avalanche – pay your highest interest rate first. Similar strategy as the “snowball”. Once your highest interest rate debt is eliminated, pay as much as you can towards the debt with the next highest interest rate.

Use retirement funds to pay off your debt. You’ll likely, depending on your age, pay a 10% tax penalty, however (if you’re under 59 1/2). Do you have any cash accumulated in a whole life insurance policy? Use that cash value to pay off your debts

Negotiate

How much, in terms of dollars, can you pay to your creditors as a settlement? Figure out what that number is before you start contacting creditors.

It may take a couple of phone calls, so don’t get discouraged. If you don’t like what you’re hearing from the representative you’re talking to, try and get a hold of a different one. Remember the dollar amount you can pay and don’t go over that amount. If you can pay 50% of what you owe, start with an offer to pay 30%. The creditor will counteroffer and hopefully, the agreed amount is 50% or lower.

Make sure you’re clearly communicating the financial hardship you’re experiencing that put you behind on your debts. Getting sympathy from a representative could help you! Get any settlement or repayment plan in writing as soon as possible.

Make sure you’re speaking to your creditors, not collections agencies. Collections agencies will take a settlement amount and sell whatever is left to another agency. Before you’ll know it, they’ll be after you again. Speak to the creditor you initially owed. Also, be prepared to pay taxes on the forgiven amount.

Bankruptcy

Nobody likes to think about it and it would be a very difficult decision, but it might be one to strongly consider if you want to settle your debt.

If you don’t have luck with negotiations, you might have to consider bankruptcy. There are generally two options – Chapter 7 and Chapter 13. Chapter 7 clears all of your debts. Chapter 13 is more of a reorganization.

Check credit reports

Clarify with the credit reporting agencies how things were settled. Clean up the report and it could help your score a little. Late payments and charge-offs stay on your credit report for 7 years. Debts in collections stay on your credit report for 180 days.

Debt settlement is about commitment. There are penalties if you miss ONE payment of your agreed-upon settlement, so don’t miss!

One more thing. Know your rights. There are several things collectors can’t do:

  • They can’t threaten you
  • They can’t shame you
  • They can’t force you to repay your debt
  • They can’t falsify their identity to trick you
  • They can’t harass you

It’s a tough road, but getting out of debt is paramount for your psyche and your financial success. Utilize strategies to pay down debt. Speak with your creditors about negotiating. If negotiation doesn’t work, consider bankruptcy. Once you settle your debt, review your credit report and dispute errors.

Related reading:

What you need to know about bankruptcy

Diving deep into debt

How to improve your finances on a low income

What to do about debt collectors

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

4 Guidelines for Paying Down That Credit Card Debt

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If you’re like me, then the past month or two of your life has involved getting your financial ducks in a row in order to file your taxes. Now that tax season is essentially over, it’s a good time to take a look at your credit card situation before you take a much-deserved break from obsessing over your finances. If you’ve got any significant credit card debt, then you’re probably thinking of the best strategy to go about paying off that debt. As a former victim of credit card debt, I know that drowning in debt is not fun, and often leaves you feeling trapped. However, I’m here to tell you that you can get that debt paid off, and it’s easier than you may think as long as you are responsible with your spending. In addition to being responsible, stick to the four guidelines below to get that debt paid off most effectively.

 

  1. Pay down your highest APR credit card debt first. This point is the most important, and should probably go without saying, but I’m going to say it anyway. If you have several different credit cards that you’ve accrued debt on, you need to pay off the balance that is charging you the most interest first. If you fail to get those high-interest credit card balances paid down, then you will find yourself falling deeper and deeper into the debt hole.
  2. Always make the minimum payment. Sometimes it may seem as if there is no end in sight to the debt you have accrued. Since I’ve personally been through this myself, I know that there is an end in sight. However, if you fail to make your minimum payments each month, your credit score is going to take a pretty significant hit so that even when you have all your debt paid off, you will end up with a poor credit score, which isn’t going to be useful when it comes time to buy a house or car. Generally, the minimum payment each month isn’t a huge amount of money, so do everything you can in order to get that minimum payment in.
  3. Consider a balance transfer. If you have a decent credit score but have accrued sizeable debt on credit cards that charge high interest rates, it may be in your best interest to consider a balance transfer in order to consolidate your debt onto a credit card with a 0% APR introductory period on balance transfers. Not all balance transfer credit cards are created equally, however, so you will want to make sure you compare credit cards so that you can find a card that offers a long 0% introductory APR period. The longer the intro period, the more time you have to get that debt paid off without accruing any interest.
  4. Get rid of debt before trying to save. Generally, the credit card debt you accrue will charge a much higher interest rate than the interest you will earn on cash that you save. While it’s always smart to have a small stockpile of cash for extreme emergencies, most of your income should go to paying down that debt. If you try to save most of your money before paying down that credit card debt, you’ll be stuck in debt for much longer than you need to be, as well as hurting your credit score.

 

This article was written by Logan Abbott. Logan is the editor of MyRatePlan.com, and a personal finance and credit card expert with over a decade of experience.

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