Steps to take to get out from under excessive debt

Dealing with Overindebtedness
People become overindebted when their excessive personal debts make repayment difficult and cause financial distress. There are ways to get out from under this burden Ten Signs ofOverindebtedness

1. . Exceeding debt limits and credit limits. Are you spending more than 20 percent of your take-home pay on credit repayments? Do you sometimes reach the maximum approved credit limits on your credit cards?
2.  Not knowing how much you owe. Have you lost track of how much you owe? Do you avoid reality by not adding up the total? Are you afraid to add up how much debt you have
3.  Running out of money. Are you using credit cards on occasions when you previously used cash? Are you borrowing to pay insurance premiums, taxes, or otherlarge, predictable bills? Are you borrowing to pay for regular expenses such as food or gasoline? Do you try to borrow from friends and relatives to carry you through the month?
4. Paying only the minimum amount due. Do you pay the minimum payment or just a little more than the minimum on your credit cards instead of makinglarge payments to more quickly reduce the balance owed?
5.  Requesting new credit cards and increases in credit limits. Have you applied for additional credit cards to increase your borrowing capacity? Have you asked for increases in credit limits on your current credit cards? Have you obtained acash advance on one credit card to make the payment on another card?
6. Paying late or skipping credit payments. Are you late more than once a year in paying your mortgage, rent, car loan, or utility bills? Do you frequently pay late charges? Are you juggling bills to pay the utilities, rent, or mortgage? Are creditors sending overdue notices?
7. Using debt-consolidation loans. Are you borrowing, perhaps from a new  source, to pay off old debts? Such action may temporarily reduce pressure on your budget, but it also indicates that you are overly indebted.
8. Taking add-on loans. Taking add-on loans, also called flipping, occurs when you refinance or rewrite a loan for an even larger amount before it has been completely repaid. Suppose that a loan of $1000 has been repaid down to $400. You decide to refinance the debt balance of $400 by borrowing $2000 and using the additional $1600 ($2000 $400) for other purposes
9. Experiencing garnishment. Garnishment is a court-sanctioned procedure by which a portion of the debtor’s wages are set aside by the debtor’s employer to pay debts. Wages and salary income, including that of military personnel, can be garnished. The Truth in Lending Act prohibits more than two garnishments of one person’s paycheck. The total amount garnished cannot represent more than 25 percent of a person’s disposable income for the pay period or more than the amount by which the weekly disposable income exceeds 30 times the federal minimum wage (whichever is less). In addition, the law prohibits garnishment from being used as grounds for employment dischar
10. Experiencing repossession or foreclosure. Repossession is a legal proceeding by which the lender seizes an asset (called foreclosure, if the property is a home) for nonpayment of a loan. When a lender repossesses property, the borrower may still owe on the debt because of a deficiency balance. A deficiency balance occurs when the sum of money raised by the sale of the repossessed collateral fails to cover the amount owed on the debt plus any repossession expenses (collection, attorney, and court costs) paid by the creditor

Federal Law Regulates Debt Collection Practices
The federal Fair Debt Collection Practices Act (FDCPA) prohibits third-party debt collection agencies from using abusive, deceptive, and unfair practices in the legitimate effort to collect past-due debts. Debt (or credit) collection agencies are firms that specialize in making collections that could not be obtained by the original lender. In some cases, they assist the original lender (for a fee); in other cases, they take over (purchase) the debt and become the creditor. When a debtor offers to make payment for several debts, the FDCPA requires that the amount paid must be applied to whichever debts  the debtor desires. Banks, dentists, lawyers, and others who conduct their own collections (second-party collectors) are exempt from the provisions of the FDCPA. Nevertheless, many states have enacted similar laws that govern these second-party  collectors.

Collection agencies are prohibited from telephoning the debtor at unusual hours, making numerous repeated telephone calls during the day, not applying payments to amounts under dispute, using deceptive practices (such as falsely claiming that their representatives are attorneys or government officials), making threats, or using abusive language. They also cannot telephone a debtor’s employer. Even with these limitations, collection agencies can be irritatingly persistent when collecting past-due accounts. If the collection effort is not successful, as a last resort the creditor may take the debtor to court to seek a legal judgment against the debtor; this judgment may be collected by repossessing some of the debtor’s property or garnishing wages.

Steps to Take to Get Out from Under Excessive Debt
Even the most well-meaning credit user can become overextended as a result of illness, unemployment, or divorce. What should you do if you realize that you are overly indebted?

1. Determine your account balances and the payments required. Find out exactly what it would take to pay off your balances today. This amount is not the same as the total of your remaining payments and probably includes penalties and late charges if you have been unable to keep up with your payments. Also ask your lenders to give you a monthly payment dollar amount needed to pay off the debts by the date previously agreed
2.  Focus your budget on debt reduction. Calculate the percentage of your budget necessary to make the payments on your debts, and then add 5 percent. Use this extra money to help pay your creditors by applying the extra money to the debt with the highest APR. The sacrifices required will pay off in the long run. Remember, paying off debts provides a better “rate of return” than putting money into savings and investments, so invest your money in debt repayment first.
3. Contact your creditors. Try to work out a new payment plan with your creditors. Many lenders, including those that finance automobiles, may let you skip a payment. They want to see you solve your financial problems so you can avoid bankruptcy. Creditors are more likely to work with borrowers who come to them first rather than after collection efforts begin.
4.  Take on no new credit. Return your credit cards to the issuer or lock them up so that you cannot use them. Disciplined action to reduce debt should show results in  only a few months. If progress does not occur, seek professional help.
5. Refinance. Determine whether some loans can be refinanced to obtain a lower interest rate, especially mortgage loans.  Even if you refinance, keep making the same payment so you will pay the new loan off more quickly. Obtaining a debt-consolidation loan might be appropriate for someone who has acquired too much debt, but you should avoid the temptation to use this strategy simply to lower your total monthly payments. However, it is smart to use debt consolidation to lower APRs.
6. Find good help. You may be able to obtain free budget and credit advice from your employer, credit union, or labor union. Also, many banks and consumer finance companies offer advice to help financially distressed debtors, as do nonprofit credit counseling agencies (CCAs). Such an agency can make arrangements with unsecured creditors to collect payments from overly indebted consumers to repay debts, and it can provide individuals with credit counseling, assistance with financial problems, educational materials on credit and budgeting, and a debt management plan (DMP). A DMP is an arrangement whereby the consumer provides one monthly payment (usually somewhat smaller than the total of previous credit payments) that is distributed to all creditors. Creditor concessions, such as reduced interest rates, may also allow debtors to repay what they owe more quickly than would otherwise be possible. Credit counseling services are provided at a nominal cost on a faceto- face basis, online, or via the telephone. Seek an agency that is a not-forprofit agency that has 501(c)3 status from the IRS and that will do a full budget review for you. You can obtain consumer information and a referral bycontacting the Association of Independent Consumer Credit Counseling Agencies [(800) 450-1794; www.aiccca.org] or the National Foundation for Credit Counseling [(800) 388-2227; www.nfcc.org].
7. Avoid bad help. Many companies claim that they want to help people in debt.A credit repair company (also known as a credit clinic) is a firm that offers to help improve or fix a person’s credit history for a fee. Some are not so reputable, however. Avoid firms that charge a hefty advance payment ($250 to $2000).

In reality, no company can remove or “fix” accurate but negative information in anyone’s credit history. You can improve your future credit history by making on-time repayments. And you can correct errors in your credit bureau files on your own for free with little effort

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