Unit 4: Money Management

Lesson 8: Problems with Debt

OBJECTIVE

1. Review the steps that a person can take when having problems with debt.

SUPPLEMENTAL RESOURCES
Easy-to-Use Guide to Credit and Loans – A $6.95 book by JIST Works, Inc. (1800 648-5478).

INSTRUCTIONAL FORMAT
This lesson will provide students information to help them if they are having problems with debt. The information is based on material that is presented by Ludden in Consumer Loans & Credit Cards: An Easy-to-Use Guide to Credit and Loans.

1. The first step in getting out of debt is to develop a budget. See the lesson on Budgeting. By doing a budget, a person can see where he can cut costs and apply that money toward the debt.
   
   

2. Stop using credit cards and borrowing any more money. One loan a person could consider getting is a debt consolidation loan. By taking out a debt consolidation loan, a person can pay back money to various lenders. Therefore, instead of having several bills to keep track of, the person pays one bill each month. This convenience comes at a cost. Although the monthly payment is probably going to be less than combined total of the multiple bills, the interest rate may be higher. Students should strongly consider whether they are willing to pay more money in the long run for this convenience. It is important to check out the organization that is providing the debt consolidation loan to make sure it is reputable. Make sure you are aware of all of the conditions of the loan before agreeing to it.
   
   

3. Contact your creditors. Discuss your situation in an honest manner. Most likely the creditors will be willing to work out a reasonable payment plan. In fact, many creditors are willing to ease up on their collecting tactics if you pay at least some money each month instead of paying nothing.
   
   

4. Contact the local Consumer Credit Counseling Service (CCCS). As a nonprofit agency, the CCCS has services for free or at a low cost. It will assist with financial advice and work with your creditors to develop a payment plan.
   
   

5. Avoid "Credit Fixers." Credit fixers make claims such as getting you instant credit, eliminating bankruptcy, and generally fixing your debt problems. These companies generally charge high fees with little results. They sometimes are simply a racket that takes a person's money and disappears.
   
   

6. In extreme measures, a person may have to file for bankruptcy. Filing for bankruptcy through the courts protects the person from creditors while she and the court develop a payment plan. While this allows the person to pay debts over a three to five year period, his credit report contains this information for 10 years. This can affect his future chance of getting credit. A person should contact a lawyer to get guidance in this process.

SIGNS OF GENERALIZATION
Hopefully, students stay out of significant debt problems. If they get into problems, they seek appropriate assistance and communicate with their creditors to resolve the situation.

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