Preparing For Debt Problems

Debt has become not just an American tragedy, but a global one. Countries, as well as individuals and families, are facing unprecedented financial crises never before experienced in this lifetime. While 2008 marked the beginning of what many have already called a "Global Armageddon", media outlets went into overdrive, noting the severity of the global meltdown. Sadly, for once, the media was not overselling it.

While many countries like Greece, Ireland, Spain, and the United States tackle financial issues, families and individuals are facing the same dilemmas: How to spend less, what to cut from the budget, how to increase income and capital. It is easy to point fingers, play the blame game, and prolong the inevitable, but eventually, one must face the mounting debt crisis, otherwise, you simply drown in it.

So what advice can be given to someone who is facing financial disaster? What can families do to save for college, vacations, retirement? What happens when the unthinkable occurs such as layoffs and/or illness? For one, plan ahead. Start saving right now. If you have a well paying job, settled in your career, and have a 401(k) nest egg, put in a little extra each month from your check. Have a separate retirement account established with your bank, just in case the stock markets go haywire again as they did in 2008.

Many analysts have predicted the worst is yet to come; the markets will be unstable for at least two more years, so it's best to get prepared. If you have outstanding debt, like a credit card balance, pay it off, the sooner the better. If you're strapped for cash, set up payment arrangements with your creditors. Most credit card companies are willing to reduce your payments, or settle for a one time amount, granted it goes on your credit report for seven years. Do not let your outstanding balance go into litigation. If it's taken up with the courts, and you face lawsuits over payment, the outcome will be even worse, litigation will destroy your credit score, and even if you settle out of court, you will have that blemish on your report ten years or more.

For student loans, there's no running away from paying those. You will have available deferment and forbearance options, but only for a short time. Once you run out of forbearance time, you must make payment arrangements with your borrower. Do not let your loans go into default. It will destroy any chance you have at securing employment, car loans, home loans, any type of loan you may need in the future.

Speak to your student loan borrower to see what other options are available, in case emergencies erupt. Home loans, like student loans, must be paid immediately following your grace period. Interest tied to the mortgage, is immediately applied to the loan, unlike a student loan, which gives you the option of paying the interest immediately, or lumping it with your balance, ballooning payments, later.

By: Mark J Gregory

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Mark Gregory is writing on behalf of Money Matters, who offer Bristol debt advice and North Somerset debt advice.