I Cant Pay My Debts What Are Your Options
If you have said this recently, you are not alone. The average personal debt in the UK is currently over £3,000, and with so many people living from payday to payday, one unforeseen event can send you into a spiral of debt.
When you first enter into debt, you might receive requests for full payment or face legal action. This request is usually sent to you in a letter, known officially as a letter before action. So, if you think you cant pay your debts and receive this scary letter, you need to act.
The good news is there are things you can do if you cant afford to pay your debts!
Many Hands Make Light Work
One wise step in the process of getting out of debt is to meet with a , though this option is much more helpful if you do it before you’re desperate. A credit counselor will provide many helpful tips and make sure that you’re on the right track with your repayment plans.
They may also provide support when you meet with your creditors, adding some professional weight to any negotiating you want to do. That said, be wary of credit specialists who charge high fees while churning through an equally large volume of clients.
What Happens If You Ignore Your Debt
If you ignore your bills and make no payments, your accounts will become delinquent. If youve ever been delinquent on a debt, you probably know that creditors get a little antsy when you stop paying them. Youll likely get phone calls and letters reminding you that youre past due and asking for a payment.
Eventually, unpaid debts are charged off meaning the creditor writes them off as a loss. That doesnt mean the debt disappears, however, or that you no longer owe the money. The creditor may transfer the debt to an in-house collection department or they may sell the debt to a third party debt collection agency.
A debt collection agency may buy the debt for a fraction of its value , but they have the right to collect the debt in full. They will pursue you for the money, with persistent letters and phone calls. If they have no success getting you to pay, they may ultimately choose to sell the debt once more, and the cycle will continue with a new debt collector.
What’s happening to you during all this? Well, your credit score may be damaged, and your debt may be growing thanks to various fees, penalties, and interest charges, but beyond unhappy phone calls and letter, your situation hasn’t really changed.
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Are My Assets Protected By Exemption Laws
If you file for bankruptcy, exemption laws can help protect your assets. Exemption laws vary from state to state so it is important to understand which assets can be protected under your states exemption laws. Secured property, such as a home or car, can still be at risk. In many cases it is possible to negotiate to keep nonexempt property.
Covid Relief For Parents
One of the most beneficial programs for parents is the enhanced Child Tax Credit, which was part of the March 2021 American Rescue Plan. It is not a tax deduction, its not an advance on your tax return. It is free money $3,000 for each child between 6 and 17, and $3,600 for each child under the age of 6. Its for single parents who make less than $75,000 a year, or couples who make less than $150,000. Beginning in July 2021, parents who qualify and paid 2020 taxes will begin getting monthly checks of $250 for each child for the older child bracket and $300 for the younger bracket. The checks come every month through December 2021. The second half of the tax credit $1,500 or $1,800, depending on the childs age will arrive in a lump sum in April 2022.
Another new feature is that low-income families who didnt make enough money to file taxes will still get the credit. They must sign up for it at the IRS Child Tax Credit Non-Filer Signup Tool.
The IRS estimated nearly 39 million households representing 90% of the children in the United States will get the money. While the enhanced credit is only a one-year thing, a movement is on to make it permanent.
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What Should You Not Say To Debt Collectors
This list includes things you should not do or say to a debt collector.
- Make a good faith payment. This payment can restart the expiration clock
- Be rude to a collector. It can work against you if the phone calls are replayed in court
- Let your contact information get out-of-date
- Admit that it is your debt or promise to pay it can be construed as a contract
- Give out financial information like your social security number or the value of a property
If A Creditor Asks You To Pay More Than Your Offer
Some creditors might ask you to pay more than youre offering. Dont agree to pay more than you can afford you could end up getting in more debt.
Write to the creditor again and ask them to reconsider. Remember to include a copy of your financial statement.
If a creditor refuses your offer, start making payments anyway and let your creditor know youre doing this.
If other creditors have agreed to your offers, tell the creditor this and point out that youre treating all your creditors equally.
If a creditor still refuses your offer contact your nearest Citizens Advice for more help. An adviser can negotiate with your creditors or look at other ways of paying off your debts.
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How To Consolidate Your Debts
A debt consolidation is a process where you take out a loan to pay off your debt.
This can be a good option if you have multiple debts and are struggling to make all of the payments each month.
When you consolidate your debt, you will only have one monthly payment to make instead of several.
This can make it easier to manage your debt and can help you get it paid off quicker.
There are many different debt consolidation options available, so be sure to do your research before choosing one.
Alternatives To Help You Manage Your Debt And Make Your Payments
There are times in life when debt can become too much for you to handle. Times like those call for more drastic debt relief options.
Debt consolidation involves taking on a new low-interest loan to pay off all your high-interest debt. In many situations, consolidating all your high-interest debt into one loan can help solve your debt woes by making the debt more manageable and saving on interest.
A debt settlement involves hiring a debt settlement firm that will negotiate with your creditors to reduce your debt to a more reasonable level. Lenders are often willing to accept debt settlement as a repayment option because they prefer to recoup some of the money as opposed to none at all.
Bankruptcy & Consumer Proposal
If debt settlement isnt an option, you may have to consider a more serious debt relief solution like a bankruptcy or a consumer proposal. Bankruptcy can relieve you of most of your debt but you may lose some of your assets along the way. Moreover, a bankruptcy will leave a mark on your credit score for up to seven years after being discharged. On the other hand, a consumer proposal involves paying a portion of your debt over a period of five years. Once paid, your debts will be considered absolved, but your credit report will be negatively affected by it for three years following the completion of your payments.
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What Can I Do If I Can’t Pay My Student Loan
If you have federal loans , the Department of Education has different programs that could help. Applying for these programs is free. Find out more about your options at the U.S. Department of Educations StudentAid.gov or by contacting your federal student loan servicer. Youll also find more about how to get out of default.
With private student loans, you typically have fewer options, especially when it comes to loan forgiveness or cancellation. To explore your options, contact your loan servicer directly. If you dont know who your private student loan servicer is, look at a recent billing statement.
You dont have to pay for help with your student loans. A company cant do anything you cant do for yourself. Student loan debt relief companies might say they will lower your monthly payment or get your loans forgiven, but they can leave you worse off.
How Do I End Up At Debt Collection
If you dont make payments for three to six months, the creditor may sell your debt to a collection agency. This is actually a huge market and allows the company to write off your debt while you are still required to pay the bill, now to the debt collectors.
If you are late making payments or are sent to collections, your delinquency is reported to credit reporting agencies. This action will hurt your credit rating more than any other action you can take!
The debt collectors buy your debt for a decreased amount, so you may be able to negotiate a lower total payment.
If you can not repay your bill, the debt collector may be willing to negotiate with you.
Will it hurt your credit to negotiate? Yes, but so will defaulting on a debt.
If you can negotiate with the original creditor before you are sent to collections, you may be able to work out a decreased payment schedule and avoid taking a hit on your credit score.
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These Savings Accounts Are Fdic Insured And Could Earn You More Than 17x Your Bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 17x the national average savings account rate. to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2022.
What Are The Downsides Of Bankruptcy
Its an anvil on your credit score.
If youre considering bankruptcy, chances are your score has already nosedived. But if its still in the good range of 700, it could drop 100 to 200 points.
Why does that matter?
Your credit score is a major factor in determining the interest rate you receive when you apply for a loan. The better the score, the lower the rate, the less you pay.
For example, say you want a 30-year fixed loan on a $200,000 mortgage. A credit score of 700 would qualify for an interest rate of 4.392%. A score of 620 would get 5.759%.
The first one means your monthly payment would be $1,001. The second one would translate to a $1,168 payment.
Over 30 years, that lower credit score would mean youd pay almost $70,000 more in interest charges.
The bottom line is bankruptcy is not a Get Out of Debt Free card. There is no such card.
But if all those credit card bills make you feel like youre trapped in a burning house, bankruptcy is the quickest and cheapest way out.
Just remember, it could keep you from owning a real house for a long time.
Secure An Additional Source Of Income
If you’re already on a barebones spending plan, or you’d rather earn more than spend less, look for ways to make more money you can use to pay down debt. For instance, you might sell items you don’t want or need anymore, which could secure you a quick infusion of cash. Renting out an extra room, your car or your parking space when you’re not using them via platforms like Airbnb, Turo and JustPark, can also be lucrative.
Or make extra money from home by tutoring online, freelancing on the side or user-testing digital products on sites like UserTesting.com. You can also take on a part-time job, or work at your own pace with a side gig like shopping for groceries on Instacart or delivering food on DoorDash or Postmates. Do the math on how much extra you need to earn in order to start paying down your debt taking on too much work on top of your current commitments could lead to burnout. Another option is to ask for a raise at work, once you’ve researched the market in your industry and you’re willing to demonstrate how you’ve brought value to the company.
Is Your Financial Situation Temporary Or Long Term
If your financial difficulties are temporary, you might be able to get back on your feet with more time to catch up on payments or a temporary reduction in payments. But if your situation is permanent or long term, you’ll need a more permanent solution to reduce or eliminate your debts entirely. Debt settlement or filing for bankruptcy might be appropriate for your situation.
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How Can You Dig Yourself Out Of Debt And Save At The Same Time
Yes. You can dig yourself out of debt and save at the same time, but it takes planning. First, tackle the high-interest debt, and always pay the minimum balance on your credit cards and loans. Plan to save a small percentage of your paycheck for your nest egg, as you pay down your loans. Even a small amount in a savings or money market account will add up over time.
Another way to dig out of student debt is to consider finding a job with a higher salary and allocate more money to paying down your loans.
Take It One Step At A Time
Looking at your total debt picture can be overwhelming, but remember that youre not going to tackle it all at once. By concentrating on one debt at a time, your debt repayment process will be more effective. Track your progress, celebrate your successes, and keep chipping away until your debt is completely paid off.
What To Do When You Cant Pay Your Bills
The coronavirus pandemic has been a stunning reminder to American consumers that anybody can get caught in a financial bind.
Those who lost their jobs or saw their hours and income significantly reduced, discovered how quickly they can fall behind without an emergency fund.
While many COVID-19 debt relief programs have expired, theres still help for those who need it.
Work Out What You Can Afford To Pay
Work out a budget so you know how much you have left each month after paying your essential bills and priority debts. This is called available income.
Make sure you save a copy of your budget youll need to refer to this later. Youll also need to send a copy to your creditors when you ask to make lower payments. It will show them that what youre offering to pay is fair.
Try and be as accurate as you can. Before you start, find your most recent:
- bank statements
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Covid Relief For Homeowners
The forbearance program for homeowners whose loans are backed by HUD, FHA, USDA or the VA came with a June 30, 2021, deadline to apply for relief. There is no deadline for those with home loans backed by Fannie Mae or Freddie Mac, but the catch is to get an extension, they have had to have been in a forbearance program as of February 2021. If you are having trouble paying your mortgage, because of COVID-19 or anything else, the best thing to do is to find out who services your mortgage , and contact them to find out what can be done to help.
The U.S. Department of Housing and Urban Development has programs, set up long before the pandemic, to help people avoid foreclosure.
The New Year: A Time Of Reflection And Change
New Year marks a time of new beginnings. We look back at the past year, take stock of what weve accomplished, how weve lived and think about what wed like to do differently going forward. While much of this reflection focuses on our relationships, work, and health , its also important to look at how we handled our finances in the past year and determine if were meeting our goals or not….Read More
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Five: Consider Your Options
If faces your debt alone feels overwhelming, there is a variety of debt relief options that can help you take on this problem.
Offered by InCharge Debt Solutions, can help you assess where you are financially and point you to programs that help. Counselors can help if you cant resolve an issue with your credit card company, and help you create a budget and repayment plan.
Debt management program These programs create a fixed payment schedule that consolidates credit card payments into a single monthly payment on a budget that you can afford. In a debt management program, consumers generally pay lower interest rates on their credit card debt. These plans are offered by nonprofit credit counseling agencies, like InCharge, and do not use credit scores for eligibility. The counselors contact creditors on your behalf, and ask for lower interest rates. The agency pays your creditors, and you pay the agency one monthly lump sum. It comes with a monthly $40 fee, and takes 3-5 years to pay out.
Debt consolidation loans It enables you to combine multiple debts into a single loan with one monthly payment. The simplicity makes your life easier, and if your credit score is good, your high-interest debts can be rolled into a debt consolidation loan with a lower interest. That means you can pay off your debts more quickly.