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How To Deal With Debt When the Bills Are Piling Up

January 3rd, 2013 Personal Finance

In the harsh economic climate, many people have creditors knocking on their doors as their debts increase and their bank account balances dwindle. While pricey purchases and mounting bills make for a dire situation, you can get yourself out of debt. Here are a few tips to help get you back on the path of financial stability.

Don't panic

When it first becomes apparent that you're in debt, you may panic and be tempted to liquidate all of your assets to try to pay off everything as soon as possible. This is a mistake. Your fiscal troubles are a matter of mathematics and logical reasoning, and the only way to see your way out is through logic, not impulse. Consult an expert or credible online resources for pointers so you can formulate a strategy. The Federal Trade Commission (FTC) suggests contacting a non-profit, credit counseling organization, but it warns that this doesn't always mean that the services are free or legitimate. Do your homework to make sure that you're working with a reliable source.

Cut down your interest

Your high interest rates will only exacerbate your current dilemma and perpetuate the never-ending cycle of debt because you won't just be paying off the original sum. According to CNBC, you can call your creditors and ask them to lower your interest and try to negotiate a payment plan that you can overcome. If the creditor you talk to refuses to help, ask to speak to his or her supervisor.

Eliminate credit card spending

Debt comes from spending money that you don't actually have, and one of the easiest ways to do this is with a credit card. Eliminate the "purchase now, pay later" mentality and take your credit cards out of your wallet. If you need to buy something, AllBusiness.com recommends using cash, and if you must use a credit card, make sure that it's for something completely necessary.

Find additional means of income

You may want to think about other means of revenue that can supplement your current income. This will give you more capital to spend on necessary expenses without putting a dent in your current savings account, and it'll also allow you to pay off your bills with larger sums of money. If you have a skill, look for freelance work to do after hours or on weekends, or pick up a part-time job.

Pay your bills as they come in

To reduce the risk of your debts piling up unexpectedly, Good Housekeeping Magazine recommends paying each bill as it comes in. This'll not only curtail any hidden interest fees, but you'll be able to see how much money needs to be designated for necessary expenses each month and how much you can actually be spending on luxuries.

Tackle high interest credit cards first

AllBusiness.com notes that the first thing you should do is pay off your debts so that you owe less than 50 percent of the cards' limits, because anything above this will hurt your credit score. After you've settled that, you should pay off your credit cards with the highest interest rates first. This'll help reduce the growth of your debt.

Know your rights with debt collectors

Debt collectors who're constantly bothering you may increase your anxiety about the money you owe, so make sure you know what your rights are when it comes to them contacting you. According to the FTC, The Fair Debt Collection Practices Act states that a collector can't call you before 8am and after 9pm, and they can't call you at work if they're aware that your boss doesn't approve of talking on the phone.