Debt is a way of life for many people, but most of us want to get out. The toughest question to ask in many cases is “Where do I start?” In this podcast, we talk about how to manage your finances when you are in debt so that you have a clear game plan for paying it off.
Welcome to the latest installment of the CredAbility [now Clearpoint Credit Counseling Solutions] podcast. Along with your host Mechel Glass, here’s Steve Moore with a look at what you should know and what you should do when you’re in debt.
Steve Moore: Mechel, when it comes to the subject of debt there are a few questions that seem to keep rising to the top and we’ve listed those out today. So let’s start with this one, “What do I do about annoying phone calls at dinner time from collection agencies?” So obviously this person does have some debt. Mechel Glass: Well if they have some debt that’s outstanding and it’s past due, you can expect to receive calls and letters from the creditors wanting to know when they’re going to be paid. So the best thing to do is to pick up the phone and tell them what’s going on. Let them know why you’re behind on your bills and when you plan to catch up on those. Now if they are doing something illegal, they’re using inappropriate language or they’re threatening you then you can tell them not to use that type of language and to cease and desist because of the Fair Debt Collection Practices Act. So there are guidelines that they are supposed to follow when they are trying to collect a debt. But you need to make sure that you proactively get in touch with your creditors and find out if they can work with you to pay back your debts. Steve Moore: Good. All right question number two. “Are consolidation loans a good idea?”
Mechel Glass: Well consolidation loans are a little bit tricky. Because if you haven’t stopped the behavior that got you into the process then why are you consolidating? Because that means that you’ll most likely run the credit card debt back up. So what I would suggest is that you look at each of your individual debts. Make sure that you work out a plan to pay back those debts and negotiate with whatever the rates are so that you get the best deal so that you are able to pay those debts off as quickly as you can. If you are in a bind and you’re having trouble managing those debts that’s where a full service credit counseling service can help you. Steve Moore: “What about borrowing from my 401K?”
Mechel Glass: Well, we always tell people not to borrow from their 401K to pay off debts or to consolidate debts. Again, you’re going to be penalized through taxes if you do that. If it’s to avoid bankruptcy, then maybe your 401K is a last resort so yes, you may want to do that. If it’s to avoid foreclosure then yeah, maybe you want to apply for a hardship 401K loan to save yourself from foreclosure. But if it’s just to pay off credit card debt and then you haven’t changed those bad habits, you may not want to do that. Steve Moore: Okay, final question. “Should I try to save while I am behind on my bills?”
Mechel Glass: You know that’s a great question Steve. We get that a lot. Should I be putting money aside in a savings account if I am trying to pay down overwhelming debt? And that’s a two-part answer if I can take a little moment. You should have a little bit of money in your savings account because what that is going to do is it is going to help you avoid any other emergencies that come up. So maybe just having $500.00 or $1,000.00 in a savings account will give you that cushion that you need. But your focus should really be on paying down that debt as quickly as you can. Steve Moore: And if you have further questions in this regard, we can help. We have lots of resources on our website. Mechel Glass: We have classes, we have podcasts, we have a lot of resources so you choose your learning method and we’ll be there to help. Steve Moore: Thanks, Mechel. Mechel Glass: Thank you.