Finance 101
  • How To Start
  • Financial Statements
  • Assessing Your Financial Situation
  • Personal Budget & Spending
  • Identify Potential Problems & Solutions
  • Developing a Financial Plan
  • Reduce your debt
  • Identify the best way to invest
  • Recognizing Signs of Financial Trouble
  • Debt Management
  • Summary Overview
  • Resources

Debt Management

Realize that you are in debt and begin to reduce it.

Money management
In many cases, an effective debt management strategy is to pay off the highest interest rate debt first, while making minimum payments to the lower interest rate debts. After the highest rate debt is fully paid off, begin making larger payments on the next highest interest rate debt while still making minimum payments on the lower interest rate debts. Continue this process until all of the debts have been paid off. Contact the people to whom you owe money to explain your situation before collection agencies are involved. Some may understand and be willing to help you find a solution. For example, you might be able to arrange to make lower payments for a certain length of time.

If your debt is the result of illness, there may be disability waivers for major loans and credit cards during the time you are not able to work. You may also be able to access funds from your retirement account in the event of a disability or a financial hardship. However, be certain that you understand whether there will be consequences for early withdrawals, including increased taxes or penalty fees. Keep in mind that it will always be important to pay your rent or mortgage, utilities and taxes.

Dealing with Unmanageable Debt

Sometimes, despite making the best efforts to deal with financial situations, people find themselves burdened with debt that has become unmanageable. During such a time, seeking bankruptcy may become necessary.

Bankruptcy is a method of dealing with debts that is overseen by the federal court system. Although many people feel embarrassed and guilty about the need to declare or file for bankruptcy, in most situations no one did anything wrong and the situation could not have been avoided.

The Bankruptcy Abuse Prevention and Consumer Protection Act, enacted in 2005, makes it more difficult to discharge (forgive or dismiss) debts than it was in the past. Among other things, the current bankruptcy law requires that those seeking bankruptcy go through financial management training and credit counseling. Each state has its own complicated bankruptcy formula that takes into consideration income, expenses and unsecured debt.

    The following are the two most common types of bankruptcy for individuals:
  • Chapter 7 Liquidation: This type of bankruptcy allows a debtor to keep exempt property (as defined by each state). Most debts are erased although you must meet certain requirements to qualify. Other property may be sold and the income divided among creditors.
  • Chapter 13 Reorganization: This method of bankruptcy allows a debtor to keep non-exempt property, such as a home. A plan to pay creditors back over three to five years is developed. Some debts are paid in full, some are repaid as a percentage of the amount owed, and some are not required to be repaid at all.

If you find yourself in a financial crisis for which you are considering bankruptcy, talk with a lawyer who is aware of the new legal requirements to find out what options are available and what would work best in your situation.

If you need assistance figuring out how to improve your financial situation, talk with your family or a loved one. A financial planner or accountant may be able to help with recommendations for savings, retirement and investments. If you cannot afford to pay for this type of professional assistance, contact a cancer organization in your area for financial guidance and other services.

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