Before you can get out of a debt crisis, you must first recognize the problem. The moment you discover the problem determines how hard you will have to work to correct it. Whatever the case, debt problems deserve priority treatment. Money problems will not be corrected voluntarily.

Watch for the signs.

Savings: There is very little money in the savings account. The risks increase even more without any savings account.

Credit cards: how much is owed against the credit limit? If you’ve used or nearly reached your credit limit, you have a debt problem to fix. Pay attention to the interest rates of each card. There is more money to save in the long run if you attack the highest rates first.

Juggling money: do you select which bills are paid each week? Household needs take priority, but how long do others have to wait? Are you charged overdraft or late fees because your paycheck did not cover all expenses during the pay period?

Alternative Loans – Have you taken out at least one payday loan or credit card cash advance to pay off senior or other debt? Both options are expensive. If these loans are your only source of help for emergency costs, the debt crisis is an advanced problem.

Debt Burden: If your total debt (minus the mortgage) is 20% or more of your monthly net income, it’s a problem. A budget can generally handle 10-15%. This amount includes the payment of the car. Make sure the cost of the car doesn’t jeopardize your finances.

A good work budget will easily include a house, a vehicle, utilities, gas, and food. If your budget doesn’t cover these bills, plus a little extra for savings and other unexpected costs, you’re living an unaffordable lifestyle. Find areas to reduce and redirect your financial problem before it turns into a disaster.

– Stop using payday lenders altogether. Even if it takes you another month to pay off the debt, do it. It is a lot of money every few weeks that your budget needs elsewhere.

– Hide credit cards until you can pay the debt or at least pay it off. Do not cancel unless absolutely necessary. Canceling the cards will affect your credit score in a different way. If necessary, cancel the most recently acquired ones, since the credit bureaus favor longevity.

– Would your budget work better if you exchanged your car for a cheaper model and a lower payment? How about a model with better fuel efficiency? Less expensive models cost less to repair than fancier models. Look at the long-term costs when buying a vehicle.

– Do you need to downsize your home to fit your budget? A smaller home will also help lower your monthly utility payments. Don’t forget to look for neighborhoods with affordable property tax rates.

– Break all the clothes that wear badly. On-time payments come before sales prices.

Redo your budget. You now have hindsight to make better and more realistic decisions so that the new budget works exceptionally well. If you need to work out a payment plan with creditors or payday lenders, go ahead. These companies are willing to work with clients who are struggling to pay off their debt.

Once your debt crisis is over, don’t go back to old habits. Now is the time to plan for your future. Put newly discovered cash in college funds and retirement savings accounts to prepare for future costs. The sooner you start saving, the longer the money invested will pay off.

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