Despite best efforts on many fronts, the U.S. economy continues to operate at a sluggish pace and many experts do not forecast a noticeable positive turnaround anytime soon. While it is true that many consumers are successfully paying down debt and increasing their savings, millions of people remain struggling to meet their basic monthly expenses.
What do you do when it’s the end of the month and you simply don’t have enough money to pay your bills?
Well, I can tell you there is no shortage of advice out there; 34.7 billion results surfaced when I Googled “can’t pay my bills.” While I am sure there is a wealth of helpful (and legitimate) content in the majority of those results, I found a release by the Federal Trade Commission, titled Knee Deep in Debt, to be particularly helpful. It was factual, not preachy and not laden with links and advertisements trying to sell me something.
In this article, the FTC discusses different options to consider depending on your level of debt. If you are like many people who have an income but always seem to be short of cash as the end of the month, the FTC’s guidance on setting up a basic budget may be useful. I had a colleague who recently went through this exercise and it made her realize she was spending more than $150 a month on coffee and soft drinks. She has cut that down to $50 per month and is applying the $100 she’s saving toward credit card debt.
The FTC publication also does a nice job clarifying the differences among debt relief services, debt management plans and debt settlement programs. This is helpful, as many consumers facing a debt crisis assume they have to go straight to a debt settlement program. Bankruptcy is also discussed as a last-resort alternative, along with an explanation of the differences between a Chapter 7 and a Chapter 13.
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The FTC also points out the need to be careful and for people to take the time to research any entity in this space before agreeing to any relationship or agreement. Unfortunately there are a lot of organizations out there trying to take advantage of people who are in a vulnerable state.
One way to help ensure you’re making an informed decision is to simply Google a business’ name along with a search term such as “complaints.” Another is to check whether a business has ever been reported to the Better Business Bureau. If a company asks for money before services are delivered, consider that a big red flag.
While the simple act of interacting with a credit counseling service will not lower your score, should you agree to partial payment plans (where the lender has agreed that you can pay less than the full amount owed), this could result in loss of points, as this activity reflects negatively on the score. If you are knee-deep in debt, however, entering into such a plan may be the most logical action from a long-term perspective regardless of score impact.
[Related article: Credit Score Q&A: Impact of Requesting Credit Card Limit Increase?]
Image: walknboston, via Flickr.com