Debt is often referred to as a spiral. True, many people live with some form of debt (be it a mortgage, an overdraft, or otherwise) that is manageable and not too dangerous by itself. However, when you borrow more than you can repay, often it’s a habit to borrow more to keep up with the payments, leading to debts becoming unmanageable over time. For many, the debt spiral is real.
This reminds me of The Syndicate, a series we are currently watching on BBC. One of the main characters is in so much debt and she still carries on gambling in the hope that she will win enough to pay off even one of her debts. I won’t give anything away but you should give it a watch. It is funny, entertaining and insightful. Anyway, back to this spiral.
It might feel like there’s nothing that you can do when debt gets to this point, but there are options. It becomes harder to escape debt if you let it get worse, yes, but it doesn’t become impossible.
Get in touch while you can
It’s a reaction that is easy to understand. When you’re in debt with a creditor, you don’t want to “poke the bear” so to speak. You might want to hope you escape their notice or buy yourself more time to deal with it, but ignoring their letters, their calls, or opportunities to get in touch with them is a major mistake.
You can negotiate with your creditors about your debt if you know that you’re going to have trouble paying it. Many of them will work to find ways to make sure they get their money, even if it means changing the terms of repayment.
On the other hand, if you don’t get in touch with them, the creditors may feel that they have an obligation to get in touch with a collections agency. Unless creditors, collectors do not negotiate, and there is no wiggle room with them. They will persist until they have collected the debt and may speed up the process of using things like court orders to make sure they have the right to take away property to pay for it.
Restructuring your debt
If your debt is built up in various places due to agreements with several creditors, then negotiating for more forgiving repayment terms may not be possible. In some cases, there are creditors who simply do not want to make things easier for you. If either of these are true, then moving the debt to someone else might be the best solution. For instance, in the case that you might take the predatory, high-interest payday loans that are currently widespread on the market, you can end up with debt that’s rocketing too fast for you to pay.
Whether it’s because the interest rates are too high and the creditors aren’t willing to help lower it or because you have debt with multiple creditors and want to make it more manageable, debt consolidation loans can help. They can help lower or freeze interest on the worst loans, while also helping you reduce the stress of having to pay multiple creditors back. However, it’s important to recognize that you still need to save up the money to repay the debt. You may just have a little more time and less interest to make it easier to do so.
Wiping the slate clean
If there seem to be no other options and you are entirely unable to pay off the debts that are currently on the table, you are not entirely without help, still. Personal bankruptcy is not a step that anyone should take lightly, nor use as the first available option. However, it’s not the life-ending catastrophe that it used to be thought of as. Simply put, it clears all debt from your history, aside from student debt and a few other extraordinary exceptions. However, in order to make up the debt, all the possessions that make up your net worth, including any property, vehicles, and valuables, will be sold.
This situation helps us to understand why we must try to live within our means and stay within the budget.
Your credit score will also take a significant hit after you have declared bankruptcy. However, the benefits of filing include the ability to no longer have to live with the stress of debt hanging over you and can get rid of the lengthy process of collections. It is only applicable when there is more debt than you are able to pay with your entire net worth. From there, you need to go about the steps of rebuilding your debt. It will take years of credit-conscious behavior to get you back to a truly clean slate, but it might take even longer if you can’t get rid of your debt otherwise.
Getting deep into the debt spiral may feel like you’re trapped in something inescapable. However, there are means to get out of it, even if it will take effort, time, and money. Hopefully, the pointers above help you find your direction.
Let us know if you have any other useful tips for this such an important topic.