Avoid Debt

Frequently Asked Questions about debt

Q: I’ve made a budget and I’m following it but it always fails and my debt keeps getting bigger. How can I create a budget and stick to it?
A: Creating and following a budget requires honesty, determination and support. The following suggestions will require several hours of detail work, also providing information to help you start and follow through each step.

Is bankruptcy an option?

Bankruptcy is characterized when the sum of your assets and credits (estimated in a fair price) does not cover the total amount owed; in other words, when you owe more than what you have.
You must exhaust all your resources before filing for bankruptcy and submitting yourself to creditors’ competition.

Debt reduction negotiation

Depending on the circumstances, a financial advisor will be able to negotiate a reduction of your debt. The creditor may agree to lower to amount of the debt, the interest rate or simply postpone the final payment date in exchange to the promise that you will pay off your debt in the terms and time agreed on. It is important to highlight that these negotiations are done privately and directly with the financial institution.

Taking a second mortgage

Another way to consolidate your debt is to obtain money over the value of your house. With a second mortgage, both interest rate and monthly payments would be considerably lower than you current debt, freeing up more money to pay it out. However, taking a second mortgage may put your house in risk.
Before seriously considering this option, ask yourself the following questions, and answer them truthfully:

Get Help

What to do when you owe too much? Don’t be afraid to contact your creditors. Calling them might be your salvation.
In case you are facing too bigger debt, it will take more than reducing your credit card interest rate, following a budget, paying more than the minimum each month, or closing credit lines. You might need professional help, but if you’re not ready to ask for it, we offer you the following advices:

Consolidating debt

Consolidation of debt means combining all your debts into on single loan at a lower interest rate; it can be done in a matter of days.
Credit Cooperatives are the best sources of debt consolidation with low interest rates. If you don’t belong to a credit cooperative, there are other options available, including banks. You can research debt consolidation on your own city, or trough a credit consultant.

Keep your expenses under control

If your income cannot cover your total expenses, you need to make adjustments. It is easier to reduce expenses than to increase income. Don’t worry, you won’t have to make extreme changes. You must cut expenses effectively, in a way to allow yourself to pay your bills.
You must organize bills in accordance to their importance.

Recommendations

If your expenses are increasing and your income isn’t, you are probably misadministrating your expenses, which may cause you problems. Review the following list and if two or more of the examples apply to your case, we suggest you carefully revise your expenses.

Creditors breathing down your neck

Many financial institutions rely on collection agencies to obtain payment if an account is in default over a period of time. If you find yourself in a difficult financial situation and can’t make your monthly payments in full, collection agencies, much like the original creditors can accept alternative payment plans.
According to the Association of Collection Agents’ Code of Ethics, a collection agent cannot lie, deceive or harass you.

Understand the difference between warranted and un

Warranted debts are attached to an asset, like the mortgage of a house or financing of a car. If you become delinquent on payment of a warranted debt, the financial institution can repossess the asset (repossessing a car, or foreclosing a house).

Evaluate your Debt

A full picture of your financial situation will help you design a plan to payout what you owe, and put you back on the path to good financial health.
This section contains tools to help you measure your debt, calculate your interest rate; understand your rates and monthly expenses, and to realize that by paying more than the minimum will help you liquidate your debt faster.
Assets