How to Stop the Spiral of Debt

Sometimes all takes is a small setback to throw you into a financial tailspin. When you realize you can’t pay your bills, your first instinct may be to panic. This reaction is completely understandable – and common – but it won’t solve your problem. Instead, by staying calm, evaluating the situation and considering your options, you’ll be better able to find a smart solution and get back on your feet.

Evaluate. The first step to regaining control of your situation is to list out:

• How much money you owe
  
• To whom you owe money
  
• When you need to pay it back
  
• Whether the creditor offers a payment plan or payment options
  
• What the consequences are to not paying

Determine Your Options.

If you can’t pay small bills, like utilities, you may be able to skip a payment at the expense of incurring a small late fee. Of course, you should make every effort to stay current or you risk having your services shut off.

For large bills, like a mortgage payment, contact your lender ASAP, to see if they have a program to help borrowers who are dealing with a temporary financial crisis. You should always do what you can to pay large bills on time, however. If you don’t, you risk damaging your credit standing and possibly losing your property. Other options: consider using savings to pay these bills, or reducing your expenses.

If you’re in serious debt and see no way out, develop a plan to pay it down over time. Whatever you do, don’t charge more to your credit cards. Just pay them down.

If you lost your job or have an illness in the family, stay in communication with your lenders – or medical billing offices – and try to work out repayment options.

Also, Credit.com provides many options debt assistance and services. Compare debt reduction solutions to find the one that best meets your needs.

Consider borrowing. If you can’t work out a repayment option, or you need a quick influx of money for an unexpected expense, like a car repair, you may need to borrow money.

• Credit cards – Credit cards are one of the easiest and cheapest ways to borrow money in a financial crisis.


• Savings – Deciding to access savings during a financial emergency may seem like a bad idea, but it is actually a smart move in some situations. You will not have to pay interest or fees on the money you borrow from a savings account.


• Small loans – If you need to borrow less than $1,000 for a specific purpose (like a utility bill), consider using a service like Bill Pay from Credit.com, which, for a small fee, pays a specific bill and debits your bank account 30 days later.


• Personal loans – If you need to borrow a larger amount of money – from $1,000 - $15,000 – consider a personal loan.


• Home equity loans – If you are a homeowner and you have equity in your property, you may be able to cash out some of your equity by refinancing. These loans can also work for consolidating your debts. Be very careful about using a home equity loan, however. The loan is tied to your home, so if you cannot make the payments, you risk losing it.