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What Not to do When You’re In Serious Financial Trouble

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What Not to do When You're In Serious Financial TroubleWhen debts are spiraling out of control and scary creditors are knocking on your door, it’s easy to react impulsively out of fear and worry. The fact is, when your mind is weighed down by serious debt, it is difficult to think clearly. Some decisions you make can actually make the problem worse and there are a number of things that you should avoid if you are looking to become financially secure.

Don’t ignore the problem:
The ‘out of sight, out of mind’ mentality is one that many practice when dealing with mounting debt. It is a coping strategy that works in the short term but the more you ignore financial trouble, the more it accumulates. High interest rates and additional fees will cause debt to grow while it remains unpaid. Although it is difficult and embarrassing, it is important to talk to creditors and lenders if you are having difficulty repaying loans. Many creditors would prefer to work out a payment plan with you because it is better for them to receive the money in smaller installments than not at all. This is particularly important if you have been made redundant or have gone through a divorce; lenders won’t know your situation until you tell them.

Don’t forget to make a budget:
If you are in financial trouble, chances are your budget making (and budget sticking) skills are not entirely up to scratch. Financial planning is an incredibly important part of getting out of debt, so make sure that you create a budget that you can afford. A good part of budgeting is managing your banking so it is wise to consider all of the options when choosing where to store your money. Overdrafts and credit cards can be a tempting quick-fix for those in a tight spot but they will eventually have a devastating effect on your finances if they remain unpaid. Opening a basic bank account can combat these issues because they do not offer an overdraft facility or a credit card; they are essentially just places to store your money.

Don’t promise to pay more than you have:
Negotiations with creditors can become aggressive and when they do, reassuring that you will pay a large sum of money can be a reflex. Of course, it is stressful when lenders hound you and threaten you with debt collection. However promising to pay what you don’t have will be damaging to your own finances and will complicate the relationship you have with the lenders. It can make them unwilling to renegotiate your loan terms in the future and can even result in lawsuits to obtain the money owed.

In essence, the trick to getting out of financial trouble is to think clearly, plan for the future and stick rigidly to a budget. It can be helpful to visit a financial counsellor who will help you have important conversations with your creditors. By avoiding the mistakes above, you can begin to plan for a brighter and more secure financial future.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net


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15 comments
Laurie says February 5

Great post. For us, we’ve found it’s important not to give in to our emotions. Sometimes the amount we’ve got to pay off seems insurmountable, and our emotions start to make us believe we can’t do it. It’s important then to take your emotions out of the equation and focus on the facts. Good info here!

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    Grayson says February 5

    I agree Laurie. Emotions are usually what gets you into debt in the first place, so why not take them out of the equation when you are trying to get out of debt?

    Reply
Jefferson @SeeDebtRun says February 5

The don’t pay more than you have is a good one and something that can easily be forgotten.. There have been a few times in our debt repayment phase where we paid “too much” and ended up in a bit of trouble that month..

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    Grayson says February 5

    Yeah, I have done that a few times. Paying more than you have it always going to get you into trouble. Thanks for stopping by Jefferson.

    Reply
John S @ Frugal Rules says February 5

Good post! When I was in debt I was big on ignoring it. You’re right though in that while it may provide, albeit brief, short relief in the long run it just makes it worse. I found that once I finally took it head on I was finally able to deal with the situation and be realistic about it.

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    Grayson says February 5

    Same here John. I was fine skating along with the minimum payments, but after I realized what I was doing, I was able to come up with an attack plan.

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KK @ Student Debt Survivor says February 5

I wasn’t in “serious financial trouble”, but I did have a ton of student loan debt when I graduated from college/grad school (which could have put me in serious financial trouble if I hadn’t paid it off). I definitely didn’t really want to “face” my debt when I first started getting the bills. I paid the minimum payments for a couple of years before I got mad and made and aggressive effort to pay them off.

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    Grayson says February 5

    Paying the minimum just makes it so easy. Too bad you are not doing yourself any favors.

    Reply
Chris @ Stumble Forward says February 5

Great points Grayson. I think ignoring your debt probably is the number 1 culprit when it comes to people taking care of their finances. So people get so feed up with them that they hide from their creditors and hope things will just magically just fix themselves.

Instead I believe in taking the more proactive approach and talking your creditors about the situation. In fact the sooner you do it the more likely the chances are that they will help you out by giving you an interest rate reduction or uphold a few fees.

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Shannon @ The Heavy Purse says February 5

As a financial advisor, I’ve seen so many people pretend everything is okay when it’s not. You’re right that it’s scary and you’re right that the more you ignore it – the worse it gets. I’ve always believed shining a light on the problem lets you see it clearly, so you can figure out a plan to fix it. It does take courage but as you state, creditors are much more willing to work with people who communicate with them and want to resolve their debt. Great post!

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    Grayson says February 5

    I am sure you have seen many people like this. I used to be one of those people. My wife was really the one that kicked me in the pants to get out of my lifestyle.

    Reply
Holly@ClubThrifty says February 5

I agree it is best to confront problems head on. Ignoring them just makes them worse and lets them grow into bigger problems!

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CF says February 5

I think the “out of sight” problem is one that my parents have. My dad tells my mom not to look at the bills while he is away, so that she does not worry. :S But then who will pay the bills!??

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    Grayson says February 6

    I think my parents do that to CF. My dad tells my mom not to worry about them, but that makes her worry more.

    Reply
Listen Money Matters says February 9

Definitely some good points when you’re in trouble. I think another one that’s pretty crazy but definitely happens, don’t get into more debt! There comes a point where you just don’t care anymore and you let go. You know you’re in trouble but you truck though it and keep piling on the debt. When you know there is a problem, try to avoid accelerating it, there is always time to turn it around!

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