In the present day economy many people are finding themselves with mounting bills and debt. There are some very alarming statistics on Australian insolvency and bankruptcy. The average consumer has more than 4 credit cards and the average household has $6,500 of debt. In fact, as many as 4.5 percent of credit cardholders are at least 60 days late in their minimum payments. Whether it be from irresponsible decisions, medical bills, lost income, increased living expenses, poor investments, or anything else, there are many ways to deal with unmanageable debt. Some are wise and effective, others not so much and can get you deeper into debt. Unfortunately, one can only ignore their debt for so long until something must be done about. Depending on the situation, some solutions to debt management may work for one person or family, while others may better work for another person or family.
Ignore the Debt
The simplest action one can take regarding their debt is really an inaction; do nothing. Ignore the phone calls and collection letters. Depending on the type of debt that has been incurred this may work for a few months, maybe even up to a year or longer. But eventually a person avoiding debt will see legal ramifications in the form of court summons being brought to their door. This adds collection costs and court and lawyer fees to their debt. If court summons are ignored it can lead to judgments against the debtor, as well as wage garnishment and the levy of personal bank accounts. Ignoring the debt is not the best way to deal with it and can lead to even more debt and legal problems.
Debt Relief Programs
There are many debt relief companies promising results to consumers these days. These programs work by collecting a fee from the debtor based on the amount of debt or the number of creditors that exist. For their fee they then promise to work with creditors to reduce the interest rate and balances owed, as well as work out some type of payment plan that is more manageable for the debtor than the current terms. The problem with many of today’s debt relief programs is that the consumer or debtor pays a large monthly fee and the debt relief agency takes their fee off the top. No creditors are paid until the company receives their fee. This causes delay in the debt being paid and can lead to the same legal ramifications that ignoring debt can lead to. The decision to use a debt relief company should only be made after careful consideration of their terms and how much time the debtor has to deal with their debt.
Credit counseling is an option for debtors, usually offered at no cost or a reduced cost. Credit Counseling educates debtors on avoiding new debt and budgeting to help pay off old debts. It can help a debtor by establishing a plan to repay debts overtime. Credit counseling can be beneficial, especially for those trying to avoid future debt. However, depending on the time the debtor has to deal with their debt, it may or may not be an effect way to manage current debt.
Bankruptcy or even business bankruptcy is another way of dealing with unmanageable debt. For many this is a last ditch effort to deal with debt. For others it is a well thought out and education decision. Bankruptcy is a legal way of dealing with all kinds of debt. Most debts, with the exception of student loans and any debt that was incurred due to a crime are dischargeable, or forgivable, in a bankruptcy. This means that if the debt is dischargeable, once a bankruptcy is complete the debt is no longer owed and no one can come after a debtor for the debt. As soon as a debtor files for bankruptcy, or a business files for a business bankruptcy all collection efforts from creditors of any kind must legally stop. This gives the debtor the space to deal with their debt and begin to get their life back together. Bankruptcy is a serious decision, but for many it is the only manageable way to deal with thousands and thousands of dollars in debt.
No matter how a debtor chooses to manage their rising debt, it is important to take action and do something. Debtors should research all of their options and be well-educated before making a decision as to how to manage their debt. It is important for debtors to remember that they cannot change the past now, but they do have at least some control over their financial future.