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Tips for creating a budget when facing significant debt

Some people end up with a significant amount of debt due to a job loss, medical emergency or divorce. For others, the debt creeps up on them before they know it. Regardless of which category you fall under, your debt has become overwhelming, and you need to do something quick.

You may wonder if one of your first efforts should be to cut expenses. This requires creating a budget that you think you can live with. Below are some tips on doing just that.

You may want to reconsider before opting for debt settlement

Knowing that other people also struggle financially may not necessarily bring you any feelings of relief. After all, solidarity does not make your monthly bills any lower or stop creditors from calling. Still, it may help you to know that you do have options available for effectively addressing your outstanding debts.

Though multiple options do exist, it can be difficult to know which debt-relief route is right for you. Already, you may have certain ideas in mind that seem more appealing than others. For instance, you may think that opting for debt settlement would be better for you than filing for bankruptcy because of the negative stigma associated with bankruptcy. However, did you know what debt settlement is not all it is cracked up to be?

Have your financial struggles left you insolvent?

Some California residents' financial affairs are more dire than others. Some people may have a little bit of credit card debt that carries over month to month but that they pay off quickly enough. On the other hand, you may be among the many who wonder whether you will ever get your debt paid off and not just from credit cards.

If your financial situation becomes serious enough, you may become insolvent. You may not fully understand whether insolvency applies to your predicament, but if you are facing a situation in which you can no longer meet your financial obligations to creditors, you have likely already become insolvent.

Millennials reach adulthood with financial burdens

You know that financial advisors recommend actions such as paying yourself first, creating an emergency fund and using cash to keep your spending under control. However, you may find it a challenge to end up with any cash at all after depositing your paycheck and dividing it among your bills and debts.

If this is a fairly accurate description, you are like many California millennials who are struggling with debt. You want to live a comfortable lifestyle, and maybe you are even putting off starting a family until you get your finances in order. However, many adults under age 35 are stuck in a pattern of spending that does not allow much room for getting ahead of their debt.

Do debt collectors have you down? Here's what you need to know

Owing a significant amount of debt can be stressful, and the constant contact from creditors only increases your stress levels. Unfortunately, the calls and letters are one of the consequences of having past-due balances. While your creditors do have the right to seek money from you that you owe, there are limits to what they can do. 

It may be helpful for you to learn about what you can expect from debt collectors. This can help you understand if you are experiencing harassment, and what you can do if their behavior steps over the line. While debt collectors are annoying, you do have the right to take steps to make this contact stop once and for all by filing for bankruptcy. This will also allow you to deal with your debt in an organized manner.

Are you hesitating when it comes to filing for bankruptcy?

Like many people, your financial struggles may have started small. You may have accrued a relatively small amount of credit card debt after making an expensive purchase, but you had the intention of paying it off quickly. Unfortunately, that or another similar scenario may have only sparked the beginning of your financial troubles.

A sudden event, like job loss or a serious medical emergency, may have shattered your financial security. As a result, that small amount of credit card debt may have snowballed into something more unmanageable. Now, you are considering bankruptcy, but you still have some trepidation regarding the possible outcomes.

Bankruptcy: Is it time?

Each month when you sit down to assess your finances, you end up with the same result. It is frustrating to work so hard and still be unable to make your paycheck cover your bills. If you are consistently behind on your credit cards, mortgage, car payment or other debts, you may find it hard to sleep at night and dread answering the phone when it rings.

Most everyone goes through hard financial times now and then. It often doesn't take much to send your budget into disarray, and it may take time and sacrifice to get things back in order. However, do you know when you are in a situation that is futile? If you have ever considered filing for bankruptcy, you may wonder when the time is right.

Negotiating with your creditors

When a creditor or debt collector calls, unpleasant as it may seem, it is an opportunity to negotiate. You may end up with good results. Some creditors are willing to hear what you have to offer rather than having to spend the money to file a lawsuit or initiate collection activities. Your first step is understanding your rights and options.

Debt collectors may not harass you by calling multiple times in a short period or if you have asked them to stop calling. They can't call early in the morning or late at night, and they should never lie, threaten or use profanity when speaking to you. When they obey these rules, you may feel free to negotiate.

Bankruptcy and your tax debt

Struggles with debt can affect every area of your life. If you have fallen behind on your mortgage, credit card bills, medical debt or others, you may be feeling as if you are drowning. Collection letters and calls seem to come every day, and you may find it difficult to eat, sleep, and concentrate on your work or family obligations. After considering your options, you have decided to see if bankruptcy can bring some relief.

However, if your debt burden includes taxes, you will need to understand the rules regarding bankruptcy and federal debts. Taxes are a priority debt, which means bankruptcy may not relieve your obligation to pay them except under certain circumstances.

Are you ready to seek relief through Chapter 7?

The holidays often leave people a little short financially, and it may take a while to get the bills back on track. For many, this splurge once a year is worth tightening the belt for a few weeks to catch up, and then it is back to a smooth-running budget.

Perhaps this does not describe your situation. If your holidays were leaner than usual and you know it will take more than a few weeks to straighten things out, you may feel a bit of a panic as you step into the new year. In fact, you may see no light at the end of the tunnel and are now looking at your options for finding debt relief. Perhaps you are wondering if you qualify for Chapter 7 bankruptcy, along with how this option may help you.


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