Money problems have a way of causing instability and turmoil in a marriage, a family, and a home. The pressure is more than most people can handle. A feeling of helplessness can consume an individual who is facing money problems. You can be one of many individuals facing money and credit problems in the United States, a common occurrence today.

Credit problems can be devastating. Once they begin, it seems as though there is no hope, but knowing how to deal with these problems can ease the pressure from your creditors.

Knowledge: The Key to Peace

Knowledge will help you deal with problems involving money and credit instead of waiting until it’s too late.
Everyone from time to time will be faced with financial disruption. The main thing to remember is to not panic. Keeping a clear mind and solving the problem is your main goal. Don’t let creditors and institutions intimidate you. Learn what your options are and plan your strategies to correct the situation.

Notifying Creditors
Nothing is more frustrating and upsetting than falling behind in your monthly obligations because of divorce, illness, or losing your job. The main thing is to try to stay calm. Immediately notify your creditors of the problems you’re facing. If you let them know before you are delinquent, the chances are better that they will work with you. They’re not out to ”get you” or cause you mental distress; they’re only doing their job in trying to collect their debts. They don’t know you personally so don’t take it personally. By letting them know your situation, they usually will work with you if they believe it is only a temporary arrangement. Too often consumers wait until they are one or two months late in their payments before they get in touch with creditors even though they’ve received past due notices and calls regarding their accounts. By calling or writing to creditors at the beginning of your problem to let them know your situation, you have a better chance of working out a solution.

Occasionally, you can negotiate with a creditor to pay a reduced amount of the bill. For example, if your payment is $50 a month, ask if you can pay $25 a month until you can resume making regular payments. Depending on what type of loan or credit you have, a creditor will occasionally extend the debt’s repayment period. For example, for a 36-month term, a creditor may add one or two payments to the end of the term, making the term 37 or 38 months. Many car loan companies will defer one payment once a year. Sometimes an “interest only” payment will satisfy a creditor. It doesn’t hurt to ask to see what creditors can do to assist you. If you’re dealing with a collection agency, offer to pay one-third or even more in exchange for a cancellation of the debt. Surprisingly enough, the collection agency may go along with your offer .

If you are in desperate need for assistance, make an appointment with your local Consumer Credit Counseling Service, a nonprofit organization that you can locate in the white pages of the telephone directory.

If you see no hope in your situation, phone an attorney who can inform you of, and explain, your options.

Overcoming Fear
The most important thing to remember is to not let fear and intimidation consume you. If you are fearful, make a list of the things you fear will. While going through this list, ask yourself, if the worst possible thing did happen:

Would I lose my health?

Would I lose my life?

Would I lose my family?

Would I lose my friends?

After you’ve answered these questions, your worst fears shouldn’t look so grim. Money can’t fix everything, but it does make life more tolerable even if it can’t buy health, life, family, or friends.

The more prepared you are to deal with your problems, the better equipped you’ll be for a solution. Fears are felt by everyone, especially about problems involving money. Try to put these fears in proper perspective to set a plan of action.

Credit and charge cards. Most credit and charge cards are unsecured because nothing is pledged as security to creditors to guarantee payment. If you fall behind on your payments, the worst that would happen is that the creditor would close your account and perhaps sue you. Each creditor has its own policies; some write off an unpaid account as a loss and never pursue it. Most creditors report your nonpayment on your credit report as a negative rating: a charge-off, a collection account, or the number of days your account was delinquent. Most creditors don’t report your account delinquent the first month you’re late. Find out from each creditor when it reports a delinquent account to the credit reporting agencies. If you need a credit card for business or personal use, select one card and pay the minimum amount due on that one. If you keep just one card, then it becomes essential and a priority debt.

Department store and gasoline charge cards. Credit from department store and gasoline charge cards is not secured. The worst thing that would happen to you from nonpayment is a negative credit rating, your credit line closed, and a possible lawsuit by the creditor. Because most gasoline stations and department stores offer credit and take charge cards, you can use the one card you have saved for the future.

Loans from friends and relatives. Sometimes loans from friends and relatives are the most painful, especially if you are unable to pay them back when you planned. If you can’t, explain the situation to each person and hope they will understand.

Attorney, medical, and accounting bills. Attorneys, doctors, and accountants are creditors who can be paid at a later time or with whom you can try to set up payment arrangements.

Newspaper and magazine subscriptions. These can be canceled and paid at a later date.

Unsecured loans. An unsecured loan has no item pledged for repayment. Finance companies, banks, and savings and loan associations issue unsecured loans. If you quit making payments, their only recourse for repayment is a lawsuit and obtaining a court judgment.

If you own your home and are making mortgage payments that are too high for you, consider selling your home. Use the money from the sale to rent a house with an affordable payment. The rest of the money you have from the sale can then be used to pay other essential bills and save as a reserve until you regain financial security.

Selling your home may not be your answer. You can try to get a second mortgage or a home equity line of credit. That may solve your problem temporarily, but if you fall behind in making your payments on either type of loan, you could lose your home.

Utility bills. It is essential that you have electricity, heat, water, and a telephone. You could live without cable television, but the other items are necessities for survival. If you’re having trouble making utility payments when they’re due, phone each utility company and make arrangements for installment payments. The companies are usually willing to work with you, and may even have special programs available for assistance. Ask each company’s customer service representative about any such program.

Car payments. If you need your car to go to work, try to keep your car payments current. You risk repossession if you don’t. Most car loans are secured by the car itself, so if the payments aren’t made, the creditor can repossess the car to repay the loan. In most cases the creditor will sell the car for less than you owe and you’ll then owe the creditor the difference. By selling your car and paying it off, however, you’ll be able to protect your credit rating. You could also use the money you have left over to purchase a cheaper car requiring a lesser payment. A repossession showing on your credit report hurts your chances of financing another car in the future.

Secured loans. Secured debts are items that are used as security or collateral to obtain a loan. A secured item is a guarantee that if payments aren’t made, the item will be returned to the creditor; it can be furniture, a car, a boat, a recreational vehicle, a house, or anything similar that was pledged as security. After determining what items you have that are secured, ask yourself if you’re willing to have creditors take any items back for nonpayment. If you don’t care, then let the creditors take them back. If you feel you cannot live without a particular item, then arrange to make the payments. Don’t risk losing the item.

Medical needs. If you have medical insurance and also medical problems, you’d be taking too big a risk to let the policy lapse. Once the policy lapses and you’ve had a previous medical problem, you will have trouble getting a new policy. Whether you have medical insurance or not, you must not let your health deteriorate. Get medical help. By taking care of any medical problems in the beginning, you have a better chance of recovery. Remember: You cannot work if you’re sick.

Child Support. You can go to jail for not paying child support. If your income has dropped, you may be eligible, however, for a reduction of your child support obligation. I usually suggest that you seek the advice of an attorney to determine your eligibility.

Unpaid taxes. The Internal Revenue Service (IRS) and state revenue departments may take your paycheck (garnish your wages), attach your bank accounts, and place a lien on your house or other property to pay any back taxes you owe. It is important that you make arrangements for repayment. Call the IRS and your state’s revenue department to make payment arrangements. Don’t wait for them to call you.

When trying to decide what a borderline debt is, you need to evaluate how far a creditor has gone in trying to collect on the bill. Many creditors who scream the loudest are not necessarily the most essential to be paid. Some types of borderline debts are reviewed below.

Auto insurance. Review the type of automobile coverage you have. Talk to your insurance agent to see how your premiums can be reduced. In some states you can lose your drivers license for not having insurance. It is important that you learn what your state requires with regard to automobile insurance. If you let your policy lapse for nonpayment, can you afford the consequences? When you finance a car through a loan company or bank, your lender will require insurance coverage. If you fail to pay the premium and your policy is canceled, the lender frequently will put its own insurance coverage on the loan, which generally is much more expensive.

Medical insurance. Medical insurance is mentioned again as a borderline debt as well as an essential one. Knowing that you have physical problems while letting the policy lapse could be quite serious. You would have a difficult time convincing another insurance company to offer you a policy if you have an existing illness. On the other side of the coin, if you have no physical problems, you might consider a higher deductible. That would reduce your premium drastically. If you can’t afford medical insurance and let your policy lapse, analyze the consequences.

Life insurance. When an individual has financial problems, life insurance is one of first things to lapse. Age is a factor when determining whether to let life insurance lapse. The older you are, the more difficult it is to get a good life insurance policy. The premiums are higher and you must be in good health. Look at your situation and analyze if a cancellation will benefit you.

Private schools and outside tutoring for children. Paying for your child to attend a private school or have outside tutoring may seem unessential. You need to look at the overall picture to see if withdrawing them from a private school or tutoring program will have a lasting effect on their future. Children are our greatest gifts, and you need to use wisdom when making that decision. If your child needs extra attention in the classroom, then perhaps it is essential that they remain in a private school. If your child has reading or learning problems and needs a tutor, stick with it. Your child’s future could be jeopardized.

Health clubs, gyms, and country clubs. Belonging to a health club, gym, or country club is generally a luxury. Determine if belonging is essential even if it is hard to give up. Don’t let your pride get in the way. Create an alternate. Exercise at home and improve your eating habits for better nutrition. Play golf at a public course. The money you save by resigning from private clubs can be used to pay some essential bills.

Attorney fees. If you have had to seek the assistance of an attorney to help with your financial problems and fail to pay for his or her services, you’ll be dropped as a client. At that point you’ll have to handle your own problems. Can you do that?

Clothing. When financial problems occur, it’s time to stop shopping in the malls. Learn new ways to shop. Go to garage sales, yard sales, swap meets, and second-hand stores. Young children grow at such a rapid pace that they always seem to need clothing. It is up to you to determine if children’s clothes or yours are essential or nonessential. Court judgments. After obtaining a court judgment, a creditor can try to collect unpaid debts by taking a portion of your wages or property. Try to negotiate a payment plan or settlement.

Other. Anything you owe now and are making payments on that has not been mentioned is considered ”other.” Determine if these other debts are essential or nonessential.

You must decide whether a borderline debt might be essential or nonessential. You must also evaluate which debts are borderline and then determine how to handle the situation you are presently facing.

Remember! Never make a payment on a nonessential debt until your essential debts are paid. That is a must. Your survival is the most important thing. If you are facing an eviction or your utilities are going to be turned off, don’t pay a credit card bill or anything else that will cause you to be short in paying your essential bills. Pay the nonessential bills only when you have a surplus of money and know that the essentials will be covered monthly.

Facing these decisions and setting a plan of action will help you through a difficult period. Many creditors will use intimidating collection efforts. Stand your ground. A creditor who yells the most is not usually an essential one to pay. Obviously, your intention is to eventually pay off all your debts.

As you complete the debt worksheets, consider carefully what debts you have and divide them into the three categories essential, non-essential, and borderline to help you get a clearer picture of where your priorities should be.