7 Steps to Debt Free Living

What should I do if I am unable to pay my bills?

A major crisis can take a toll on both you and your budget. Divorce, unemployment, illness or the death of a family member can cause your finances to spiral out of control. Despite skyrocketing bills and mounting financial stress, Family Credit Management Service offers some steps you can follow to improve your current situtation and, over time, achieve debt-free living.

Step 1: Cut Expenses
Examine your current situation to determine whether the change in your life is short-term, long-term, or permanent. This will help you understand if temporary adjustments are needed or a major lifestyle change is necessary to get back to debt-free living. To adapt successfully, you must cut some expenses from your budget.

Start by listing all of your expenses, labeling each as a want or need. A want is an expense that you could survive without, and a need is something required in order to live and provide for your family.

Here are some examples of each:

Wants	Needs
cable	food
internet	shelter
cellphone	clothes
dining out	heat
name brands	electricity
movies	transportation
CDs	insurance

Distinguishing between wants and needs can be tricky, but its important to be honest with yourself and eliminate all wants. You will face some hard choices, but drastic steps will lead to success. For instance, having internet access is a want for most people, but can be a need for someone who works from home. Cell phone services are considered a want, but if you do not have traditional phone service at home it could also be considered a need.

Reduce what you spend on necessary items. Shop at Wal-mart or Aldi’s instead of expensive grocery stores. Instead of buying namebrand clothing and shoes, stick to garage sales or second-hand stores like the Salvation Army or Goodwill. Shop around or raise your deductible on your insurance to lower payments. Weatherize your home and keep the heat low to save money on utility bills. Go online or to the library for money savings ideas to fit your situation. Family Credit Management Service also offers free books on a variety of financial topics.

Step 2: Adjust Income
Once you have reduced expenses as much as possible, you’ll need to increase your income. Is an additional part-time job possible? Does your employer allow for overtime? When was the last time you asked for a raise? Are you eligible for disability insurance or social security income?

Another option is to sell unneeded items or property. Ebay or Amazon Marketplace are great websites for selling everything from musical instruments and CDs to clothing and housewares. Familiarize yourself with each company’s policies before selling anything online.

Step 3: Seek Assistance
Asking for help is difficult, but there are resources available if you need financial assistance. Local churches often provide services to help people pay bills and put food on the table, while organizations like the YMCA or YWCA may be a source for help with child care expenses. If you can’t afford groceries, contact your local food pantry or visit Angel Food Ministries at www.angelfoodministries.com to find a host site. Angel Food Ministries provides grocery relief for only a fraction of what supermarkets charge.

If your heating bill is too high, see if you qualify for assistance under LIHEAP (Low Income Home Energy Assistance Program) by going to www.liheap.org.

Step 4: Prioritize Bills
No matter what your financial situation may look like, you must prioritize your bills. Credit card bills and other debts should seldom come before groceries, shelter, or utilities. There is nothing more important than your family’s well-being.

Step 5: Talk to Your Creditors
Don’t wait for your creditors to call you. Initiate contact to discuss your current financial situation. Most creditors are willing to work out a solution if they know you are committed to paying off your debt.

Be prepared to explain:

• Why you fell behind or are unable to make payments
• Your current income and expectations for the future
• Additional obligations
• Your plans for taking control of your financial situation.

If contacting by phone, document the name, title, and extension of the representative you speak with. Follow up with a letter that summarized the arrangements as agreed. Keep copies of all letters and replies.

Creditors may be willing to reduce monthly payments, defer payments, eliminate late charges, or lower interest rates. They all want their money and would rather get some money on a regular basis than no money at all.

Step 6: Investigate Bankruptcy
Bankruptcy is an extreme solution to unbearable debt, and only an attorney can give you advice regarding the process. Although it may seem like a quick fix to your money problems, it can be accompanied by consequences that could affect the way you make financial decisions in the future. Filing for bankruptcy might make it more difficult to purchase a car or home, send your children to college, or even get a job. If you are seriously considering bankruptcy, visit your local library for more resources before you meet with an attorney.

Step 7: Look to the Future
Dealing with debt can feel like a never-ending battle, but its important to look to the future. Regardless of your situation, you can find the light at the end of the tunnel if you have the proper tools and support. Create a budget and commit to taking control of your financial situation by making hard decisions, selling things, eliminating wants, working overtime, talking to creditors, and seeking assistance. With a little hard work and patience, you can be debt-free!