Wiping out Debts

First, how much debt can you handle? One long standing rule is that if your monthly payments on debts, excluding your home mortgage payment, exceed 20 per cent of your after tax or take home income (or 30 percent of your pretax income), you have most likely reached your debt limit. Since less than 3 percent of American families spend 30 percent or more of their gross income on debt payments, you can see that relatively few families permit their debt burdens to reach or exceed their debt limits.

With respect to debt, there are several reliable signs of danger. You might be more in debt that you can handle if you:

Can only afford to make minimum monthly payments on your credit card accounts
You have to use credit for expenditures for which you once paid cash
Have used a series of consolidation loans, equity loans, or other types of loans to pay overdue bills
Are borrowing from one creditor to pay another
Begin to run a few days late on critical payments, such as your rent or mortgage payment, or are consistently late with all your bill payments so that late fees are piling up
Dip into savings for normal living expenses

Prioritize Your Debts. Make a list of your essential debts and your nonessential debts. Then make a budget and stick to it. Whether you file bankruptcy or not, there are certain things that will not be settled by bankruptcy…you have to pay them. These are called essential debts and include: child support payments, rent or mortgage, utility bills, car payments, and unpaid taxes.

But for each of these you can call the creditors and explain to them that if they would agree to extend your payments by making the payments smaller you will pay them. Otherwise you will have to file bankruptcy.

If you have a student loan, it will not be taken off by filing bankruptcy, but you can contact them and tell them your financial difficulty. You can ask them if you could make smaller payments you would continue to pay and on time. Or by telling them you are in financial difficulty and filing bankruptcy, they may give you an extension of time before making your next payment.

When you make your budget it is usually better to make a monthly budget. Depending upon your pay dates, decide which bills can be paid from each one. Keep a close accounting of every dime you spend to see where and how much you spend on incidentals…coffee, lunch, toll fees, parking fees etc. It’s amazing how fast a $20. bill disappears and you have nothing to show for it.

Gather everything you own that you have not used in the past year and have a yard sale. Use the money for a bill, not spending money.

If you have two or more cars and can figure out a way to sell one and still get to work etc., sell it. The insurance, taxes, fuel and repairs on each auto add up really fast. If you have a boat, camper, jet-ski or anything that can help pay a bill…sell it. Once you get on your feet again and learn to budget, you can put money aside to buy another one.

Take on a part time job. Ask friends and family if they know how you can pick up some extra cash but do not borrow from anyone…it only puts you deeper in debt.

Start a home business. There are many you can start with no little or no cash. What do you know the most about? What are you passionate about? What do you do for a living?

You have a talent…put it to work.

If you have a pick-up truck, put it to work. Advertise you will haul things for people. In the spring, many people would like to have things to landscape with and don’t have a way of getting it. You can deliver it for them. Many people that live in apartment buildings don’t have a way to haul furniture home or to move…put your truck to work. In the fall, there are usually leaves that need to be taken to the city dump…put your truck to work. After storms people have tree limbs. During the winter many business need someone to shovel snow…so do individuals at their homes.

Plant a garden and sell your vegetables on a busy corner…even if it’s only on the weekends. Also start a bunch of houseplants from what you already have in your own home. You can get pots at yard sales and thrift stores. Rent your houseplants to local business nearby.

What do people compliment you about? If they like whatever it is, others will be willing to pay for you to do the same for them. Maybe it’s interior decorating, or organizing, art, music, writing. There is something you know that is worth money.

Don’t let laziness or fear of stepping out of the box you are so familiar with keep you from paying your bills and getting ahead. Bankruptcy is not the only avenue available to you. But even if you do file bankruptcy, why not insure this doesn’t happen to you again. Knowledge is power…learn and oput the information to use.