Creating a Debt Management Plan
When you’re in debt, it’s tempting to just live with the situation you’re in. It might seem too daunting to fix. This is why many people try to ignore their debt. Others stay up at night worrying about it, but they don’t know what they can do to make it better. Handling creditors is stressful. Frantically trying to figure out how you’re going to pay your bills each month makes life miserable.
The good news is that there are options for eliminating debt.
Creating your own Debt Management Plan
If you find yourself struggling with debt, it can be helpful to sit down and figure out exactly what debts you have. This may sound simple, but you would be surprised that many people are not aware of all of their debts or how much they actually owe. Sometimes, if you write down a list of all of your debts and your monthly payments, you may realize that you can in fact manage everything yourself with a little planning.
Creating a budget is key to managing debt. To do so, put together a list of all of your expenses. Break this list down into fixed expenses and variable expenses. Fixed expenses are things like your rent or mortgage, utility bills, etc. These expenses don’t change very much from month to month. Then write down all of your variable expenses, which is just about every other expense.
You’ll then need to write how much money you earn every month after tax deductions. Only include regular income that you can count on each month.
Finally, write down your debt payments such as credit card bills and other unsecured debts. You goal is then to create a budget that allows you to pay all of your fixed expenses, variable expenses and debt repayments with the money that you earn each month. You’ll likely need to cut back on some expenses to make it work. Consider what cuts you can make. Could you change your cell phone plan or cable package to a cheaper one? Can you cut back on eating at restaurants? In order to make a budget that balances, you’ll need to look closely at all of your expenses and seriously think about where you can make cuts.
Getting Help from a Professional
In some cases, you’ll be able to make your budget balance. In others, you simply won’t be able to structure your budget so that you can pay back your debts. In these cases, it makes sense to speak to a financial professional.
One professional that many people who are struggling with debt frequently speak with is a credit counsellor. The job of a credit counsellor is to educate and train people on how to deal with and avoid debt. A credit counsellor can help you create a debt management plan. Often, this plan will involve speaking with individual creditors in order to reduce the amount that is owed to them. This is done by requesting that they eliminate late payment charges or by getting creditors to agree to reduce the amount of interest owing or the overall amount due. The amount owing at this point is the amount you will probably have to repay. It’s normally only the future interest charges that stop accumulating.
Reducing the amount that you owe a creditor can make it possible to fit your debt repayment charges into your budget. However, not all creditors will agree to work with you to eliminate your debt. In addition, if any creditors have commenced legal action against you or began garnishing your wages, you will need to negotiate an end to these processes with each creditor before all will stop.
Another option for those who feel they are able to pay a portion of their debts, but not the full amount, is a consumer proposal. A consumer proposal is a legal agreement between a person and all of his or her unsecured creditors that sees the person pay a portion of his or her debts back and have the remaining debt discharged by the terms of the proposal. A consumer proposal comes with specific legal protection once it is accepted, so no creditors can take legal action against you and all wage garnishments stop. A consumer proposal can only be filed by a licensed trustee in bankruptcy.