Millions of Americans carry thousands of dollars of debt today, but not all debt is bad or unmanageable, and sometimes there is no reason to get out of debt quickly. For example, a family might own a home with a mortgage and have significant debt related to owning a home.
Paying the mortgage on time each month is an affordable and normal part of the family’s monthly budget. However, sometimes debt may become unmanageable because of job losses, an unexpected interest rate hike, or other financial issues.
It’s essential to recognize when the bills you pay each month will shortly become a mountain of debt where you’re chronically behind on your bills and are unable to catch up. How do you know when you might need to use special means like bankruptcy, consolidation, or other debt assistance? Here are a few signs.
You’re Just Treading Water on Your Bills
Financial experts always suggest paying more than the minimum each month on credit cards, but that doesn’t stop many people from keeping a high balance on their credit cards and never paying more than the minimum each month on their cards.
While you may operate for several years by paying your minimums each month on your cards, this behavior may eventually cause problems or delay the decisions you make regarding home ownership or other significant financial investments.
Tip: Look on your credit card statement. You should find a section that tells you how long it will take to pay off your credit card if you only pay the minimum each month. You might be surprised how long just a few thousand dollars might take to pay off if you only pay the minimum.
Is there a solution to high credit card debt? There are actually a few options for dealing with high credit card debt that include:
- Negotiating lower interest rates with your card companies
- Transferring your balances to a lower interest card
- Taking out a low-interest personal loan to pay off credit cards
It’s essential to consider these solutions as early as possible because insurmountable credit card debt can bury you with late charges, over-the-limit fees, and a growing amount of financial instability.
You Skip Meals or Don’t Make Necessary Purchases to Pay Bills
Just about everyone has to make a variety of purchases each month that ranges from variable costs like food and entertainment to static costs like paying the mortgage. If bills become too much to handle each month, you might find yourself cutting back on certain purchases.
Sometimes, it’s necessary to cut back on entertainment or luxury purchases temporarily because of a financial emergency, but if you find yourself cutting back on necessary purchases like food, you might need to take a look at your bills and figure out whether you might need to make some changes.
Tip: Try to create a budget for the next several months to see whether your bills are going to become more difficult to pay over time or whether you might be able to recover financially after a few months of cutting back on non-essentials like entertainment.
If you find that your budget will continue to run more into the red in the next few months and cutting back on items you don’t need to buy won’t fix the problem, you might need to consider other methods for regaining control over your finances.
Here are a few options open to you if penny-pinching isn’t going to offer enough savings:
- Work with a debt consolidation company to reduce your high-interest debts
- Place student loans on an economic/financial deferment
- Make deals with credit card companies to pay settlements on delinquent accounts
- Move into an apartment or less expensive residence.
If you have access to a financial planner, you may wish to inquire as to the best option for lowering your debts. Some people decide to get out of debt by draining a 401K or other retirement account, but this method isn’t recommended since it means you’ll pay taxes on the money you remove from your retirement fund and the action will negatively impact your ability to retire on schedule.
Is Bankruptcy a Good Way to Get Out of Debt?
Bankruptcy is a major financial decision that may impact your financial health for many years, but it’s a valid option for many families. Bankruptcy may actually help you save your house from going through foreclosure and being auctioned by the bank. Bankruptcy can also give you a “fresh start” when you file Chapter 7 bankruptcy, and your debts are forgiven or eliminated.
If you can answer “yes” to any of these questions, you may want to think about filing or speaking with a bankruptcy professional to discuss your options.
- Is your home in pre-foreclosure or headed toward it?
- Have your credit cards been charged off because they’re delinquent?
- Are you unable to buy necessities for your family?
- Have you already sold items of value to reduce debts?
- Do you think your current financial situation will continue for the foreseeable future?
Speaking with a lawyer who specializes in bankruptcy can help determine whether bankruptcy will benefit you and whether you may be eligible for Chapter 7 bankruptcy (liquidation of assets and debt forgiveness) or Chapter 13 bankruptcy (a court-approved payment plan).
Speak with a Bankruptcy Lawer from Suburban Law
Are you having problems paying your bills each month? Does it feel like your debts are too large to overcome? Would you like to know how the legal team at Suburban Legal Group PC can help? Request a Free No Obligation Legal Evaluation today, and we’ll let you know your options and whether bankruptcy is the right step for you.
DISCLAIMER: All information on this website is provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.