Nobody enjoys contemplating their financial difficulties. It causes tension, depression, and familial difficulties. However, ignoring it will not make it go away. Credit card and other types of revolving debt payments missed can have catastrophic consequences. In a few months, balances can double or even triple due to increased interest rates and penalties. In the midst of the night, vehicles can and will be repossessed if payments are missed. Credit scores that have been impeccable for decades can be ruined in a matter of months. If you take nothing else away from this article, let it be this: do not disregard a developing financial crisis.
Budget Effectively and
This factor would have prevented my clients from declaring bankruptcy more than any other factor within their control. People become accustomed to a particular lifestyle and resist giving it up in times of crisis. Do yourself a favor and eliminate this issue immediately. In the future, a realistic assessment of your budget and the elimination of non-essentials may determine whether you lose or retain your home.
A pencil, a piece of paper, and a few months' worth of bills are all you need for this step, although I am delighted to recommend relevant books to anyone who inquires. Detail your monthly income and expenses, leaving space for reoccurring expenses and seasonal needs. At least for the first few months, ensure that everyone in your family is on the same page and review your expenditures weekly. Creating and adhering to a budget is not a pleasurable experience, but it will pay off handsomely in the end.
Utilize cash whenever possible.
This stage directly follows the preceding one. If you have a firm budget, you should have no trouble paying for your expenses with cash or a debit card. In addition to keeping you accountable and reinforcing your budget, using cash prevents you from incurring further debt and allows you to build up a credit reserve in case of an actual emergency. No one enjoys carrying around large amounts of currency, and I would not recommend doing so. Carrying a small amount of cash in your pocketbook or purse and bringing a small amount of additional cash when necessary should not be overly burdensome.
Pay Your Bills Promptly
I alluded to this in the introductory paragraphs, but this is another area where I frequently observe people making errors and suffering devastating consequences. It is not uncommon for a person with excellent credit to see a threefold increase in their interest rate for missing a single credit card payment. In these circumstances, credit card companies have little compassion, and the increased interest rate can anchor you to bankruptcy. I observe it frequently. Again, if you have a sufficient budget, this should not be a problem.
In addition to credit card debts, late payments can have devastating effects on auto loans and mortgages. Typical auto loan agreements contain language allowing the lender to seize and sell the borrower's vehicle shortly after a missed payment. Even though some contracts contain grace periods, missing a second payment is a surefire way to have your vehicle repossessed, barring a bankruptcy filing. Before they can foreclose on your home for missed payments, most home mortgage lenders have a longer time frame and more regulatory hoops to jump through. However, these payments constitute the bulk of most families' monthly budgets and can be impossible to make up once they become delinquent.
No Payday Loans
Due to a number of factors, these loans have become the bane of our lending market, but fortunately, many states are racing to rein them in. Regardless, these credit arrangements are ubiquitous and are typically the final action taken by financially distressed individuals before declaring bankruptcy. Not only do these lenders charge exorbitant interest rates that are sometimes compounded daily, but they also expose you to the risk of criminal prosecution under the hot check laws. Before considering payday loans, you should investigate all alternative lending options.
Know Your Legal Position
In my legal tenure, I have heard virtually every myth and scare tactic currently employed by creditors. Allow the law to operate in your favor, and do not allow creditors and dishonest debt consolidation companies to take advantage of you. Read every contract carefully and do not be afraid to ask difficult questions. Ignorance may be bliss, but not when you realize that the area directly above the signature line on your business loan included a personal guarantee, which now means that you and your conjugal property are liable for your partners' failed business venture. Even better, after seven years of making payments on your auto loan, you may discover that the title is not being released to you because you defaulted four years prior on a line of credit with the same bank that was cross-collateralized with your auto loan.
If you have any doubts about the document you are about to sign, have an attorney review it first. The majority of attorneys charge a nominal fee for this service, and it can save you a fortune in the future.
Conclusion
Budgets are beneficial, payday loans are detrimental, ignorance is not joy, and cash reigns supreme. Pay your obligations on time and reduce your spending while it still matters. I trust these notes were useful, and I welcome any feedback, constructive or otherwise.""
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