There are a couple of broad causes of consumer debt that can affect everyone at one time or another throughout our lives. Understanding the causes and deciding to do something about it are the keys to improving your situation and becoming debt free.
Life Changes That Can Affect Consumer Debt
These are things that happen in our life that radically alter how we live our lives. If they have not been planned for with insurance or savings then we can be left with our finances badly affected.
- Unemployment: One of the things that we all go through is losing our job. The economy is in the doldrums and many companies are looking at trying to become leaner and meaner.
- Underemployment: Even if we manage to keep our jobs hours are being cut so we may also be faced with less income each week but the same amount of bills.
- Emergencies: These are part of life and when a family member is hurt, an expensive possession breaks or costly repairs are needed then we can be faced with a situation where the only option is to use debt to stabilize the immediate situation.
- Divorce: It is a sad fact that half of all marriages end in divorce and that everyone involved comes out worse financially. Previously shared costs must be paid individually and the separation of finances and income can be expensive as well. Being forced to sell assets in a poor market can be a huge financial setback.
These are things that you do to manage your finances and unfortunately it is all too common for people that are not confronted with a crisis to be very complacent about financial management. This can put us into a position where our level of consumer debt can destroy our financial position.
- Budget: One of the vital things about understanding our finances is to have a budget. It can be simple or detailed but we need to have one. Without a budget then we do not know how much we can spend and if we need to make allowances for big bills in the future.
- Check bills and statements: This is a basic thing that many people do not do. Before you throw the statement in the drawer or just pay the bill read it carefully and make sure that it makes sense to you. It is common for fraud, billing errors or unwanted services to pop up unexpectedly. You can have money being taken from your account or unused services being charged for. Without checking this money is being taken from you for no reason.
- Savings: The best way to keep your financial position positive is to have savings. Savings act as a buffer and allow us to respond to financial pressures without going into debt.
- Talk about finance: It can be embarrassing talking about your financial position even to a spouse. It is vital that everyone in your family know the financial position. This can enable the family to pull together and avoids pressure to spend on frivolous or unneeded items.
In some case we can make changes to our and our family’s lifestyle and spending habits and manage our consumer debt so that our finances are able to recover. If this is not working or you just do not know where to start then debt counseling may be helpful.
Debt Counseling and Consumer Debt
Debt counseling services can offer you a range of options once you have worked out with their help your financial position and your ability to back any debt that you have.
- Budgeting and financial management: A debt councilor can help you by showing you how to make a budget and explaining some basic financial management techniques. This gives you the skills you need to be able to control spending and to get your debts under control.
- Referrals: If you are using a community based or government sponsored debt counselor then they may refer you to an outside service that can help in a more hands on way. If you are using a commercial company then they will most likely have internal resources that can give more involved help.
These further services help to restructure debt and take a more active role in your finances and in communicating with your creditors. This can involve:
- Negotiating with creditors to reduce interest rates or extending terms to make repayments fit into your current budget circumstances.
- Building a repayment plan so that you have a complete schedule of what you need to pay and what you can spend.
- Providing a managed repayment service where you pay a single amount and the provider takes care of payments.
All of these options have fees associated so you need to fully understand the proposed cost and how the plan will affect your credit rating before agreeing to the solution they have put together for your consumer debt.