I stared at the letter in my hand in disbelief. I’d never intended to be dependent on child support payments to make the bills. But over the years I’d let our budget slowly grow, until now that weekly check from the kid’s dad was as important to the running of the household as my paycheck.
And now the child support would stop.
After a phone call to find out why my ex was out of work, I took another look at our budget. There was no way I could absorb the $350 monthly loss and make it. For over half a year I juggled, hoping his lay-off was as temporary as he believed it would be, kiting one bill to pay another, going further and further into debt. And then came the financial death blow my son crushed his foot in a biking accident. Insurance only covered a portion of the surgery, and the rest was my responsibility. Before too long our debt became unmanageable.
It’s not an uncommon story. One building block of our finances slips, an emergency saps our savings or we simply don’t pay attention to mounting debt. Instead of moving slowly into ever-improving situations financially, we find ourselves arguing over money, cutting payments for non-essentials and fearful of where this nightmare might end. We lose sight of our possibilities and focus on our problems, and they all seem to begin with balances due.
Debt consolidation commercials are constantly on the television, and are actually a viable option to those who fall into severe money woes. These plans offer a way to repay debt over a specific period of time, often reducing interest rates and eliminating late charges on credit cads. With ever-tightening regulations on bankruptcy, debt management services are a way off the roller coaster of debt. There are two different types of debt consolidation programs.
Debt Settlement Plan
Agencies advertise they can reduce your debt by as much as 70% with this plan. This is true. The agency will negotiate with your creditors for a partial repayment of your debt. Significantly reduced monthly payments will begin immediately to the agency, with monies going into a secure account until settlement agreements are made. At that time, repayment begins and may be complete in as little as three years. This debt resolution may adversely affect your credit score, however, and part or all of the eliminated debt may be taxable by the IRS. You can also expect an increase in collection activity when you choose this plan.
Debt Management Plan
With this option, you will see reduced monthly payments, smaller interest rates and an elimination of collection calls. You repay your full debt over a specified period of time and agree to acquire no new debt during the payoff period. Because the agency negotiates with creditors, the single monthly payment, while dispersed to all, is considerably less than the chuck of money you’ve been sending each creditor. Many companies send clients training programs teaching new ways to manage money more efficiently. This information is a bonus to the elimination of debt, harassing collection calls and the dread that permeates your life when you’re overwhelmed by a mountain of debt. By using the information you acquire, you can hang onto that shiny new credit score and begin enjoying life once again.
Before choosing a consolidation plan, be sure you understand the implications of each. Information is usually available at banks or from financial advisors, or from the agencies themselves. Debt won’t wait for a lay-off to terminate, a child support check to resume or an emergency to clear up. Creditors won’t wait for improved circumstances before initiating legal action. Once you find yourself in crisis, seek help immediately. Waiting will only multiply your problems.