The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
If you have found yourself on the brink of bankruptcy it is easy to feel hopeless and want immediate guidance. But working with a traditional debt relief company can carry risks of its own. Before taking that step consider the following alternatives to get control of your debt without further damaging your credit.
The base of all spending comes down to your ability to budget. When reassessing your spending habits it is important that you strike a balance between saving money while not eliminating all nonessential costs. A budget based on the complete removal of all spending is not a sustainable approach that could potentially lead you back down the road of built-up debt.
One of the most common budgeting approaches is the 50/30/20 rule. This divides your spending into three categories: needs, wants and savings. In this case, savings can be used towards paying down your debt. If you, for example, earn $3,500 after taxes, this rule will give you $1,750 (50 percent) to put towards needs, $1,050 (30 percent) for wants and $700 (20 percent) to tuck away in savings.
2. Be proactive
Communication is key in garnering control in a financial scenario. While it may feel intimidating to connect with your creditors, being proactive will ensure that things do not get any worse. The moment that you see debt building it is smart to communicate with creditors early on to explain the situation.
In some cases, creditors will be able to help in managing your debt. By disclosing your concerns early on you may be able to lower your monthly payment or put it on pause, which will help in avoiding missed payments and potential damage to your credit.
3. Seek professional advice
If you feel lost, reaching out to the bank can put you in touch with an advisor or representative. These individuals are specifically trained in how to handle these conversations and could hold your hand through the process.
This approach is also beneficial in going straight to the source. These professionals will be able to look behind the curtain at your specific finances and talk you through what may have gone wrong.
When to consider debt relief
The choice to work with a debt relief company is not the perfect fit for everyone. If you, for example, are creating new debt and cannot get it under control, the debt relief process may not provide enough support. At this point, it might be wise to reassess the spending habits that are keeping you in debt.
But there are some specific scenarios where debt relief is the best choice for you and your finances.
- Considering bankruptcy. If you are on the edge of having to file bankruptcy, it may be time to turn to professionals.
- Struggling to handle debt. Debt continues to build even after you have tried to handle it on your own.
- Can’t afford monthly bills. If you are struggling to afford your monthly bills and falling behind on credit card or loan payments.
It’s easy to get discouraged when your finances are out of balance and creditors are reaching out. But debt relief carries its own risks so before making that difficult decision it is smart to consider the options that are available to relieve your financial stress and get it under control.
Before contacting a debt relief company, first reassess your budget, be proactive with your creditor and finally seek professional help from a credit counselor.