A: A financial crisis isn't the end of the world. There are no longer debtor prisons in civilized societies, and laws give you ways to deal with financial problems. In the worst-case scenario, a person buried with debt can obtain immediate relief by filing bankruptcy. Short of taking this route, there are many options available to people who are over their heads in debt.
There are many reasons a person can end up being mired in debt. Sometimes the reasons are beyond your control, such as when unexpected medical expenses arise. In other situations, a business may have failed, you may be going through a divorce, or you may be affected by a substance abuse problem. Or you may simply be one of millions of people who simply over-spend. Regardless of the reason, the law gives you a remedy if you're willing to make the necessary sacrifices and do the work to resolve your financial problems.
Before even worrying about the legal consequences of not being able to pay back all your debts, the first thing you have to do is shut down your spending. Cut up your credit cards and pay for everything in cash. Draw up a household budget and stick to it. Eat at home. Develop an austerity program. Control your spending.
Next, you have to come up with a game plan on how you're going to deal with your debt. You can begin by gathering up all your financial records and organizing them. Next, you want to prepare a financial summary by putting it all down on paper. Start out by listing all your present sources of income and any anticipated changes in the future, good and bad. Then list information about all of your debts, including the creditor, the type of debt, the amount owed, interest rates, repayment terms, collateral, and who is responsible for repaying the debt. Don't forget about taxes you may owe.
Having this information at your fingertips will hopefully bring things into focus for you in terms of how to deal with your debt. Perhaps more importantly, though, it gives you a concise financial picture that you can use to get advice from others on how to deal with your problems.
There are many paths you can take and the decisions won't be easy. So don't try to resolve all your problems by yourself without first seeking advice from people you can trust. For practical advice and moral support, you'll probably first want to talk to your parents, siblings or even close friends. Keep in mind, though, that they may find it difficult to give you objective advice.
Before you get too far down the road, you'll want advice from professionals who deal with these types of problems on a day-to-day basis. These people would include:
- Debt counselors
- Financial planners
- Intervention counselors
- Financial planners
- Financial mediators
- Insurance agents
- Bankers or mortgage loan brokers
If they are given concise and accurate financial information, financial advisors may be able to quickly diagnose the situation and lay out your options. You may even be able to get some preliminary help for free. But you should have the expectation of having to pay these advisors at some point if you're truly going to benefit from their services. In the grand scheme of things, financial advisors have ways of working out payment arrangements for people like yourself and whatever you pay them may be money well spent.