Battling Debt in a Recession

In January 2009, Forbes reported a whopping 162,962 people lost their jobs. Companies are tightening their budgets through layoffs, hiring freezes and reducing salaries by cutting hours. No worker is safe.

Financial analysts say that the economic collapse isn’t over. 2009 is set to be even worse than 2008. The change in presidency won’t help improve things overnight. Jobs will still disappear, foreclosure rates will keep rising and credit scores will continue to fall.

If you’re searching for a new job, it’s a tough market. Employers are hesitant to hire new staff. Those companies that are hiring are unlikely to match your previous wage. You can stay on unemployment, which isn’t likely to cover your bills, or take a lower paying job, and makes it hard to keep up with mounting debt.

Credit Debt is Causing Problems

The biggest credit card companies are also struggling. To tighten their own budgets, they are reducing cardholders’ lines of credit. Many credit card companies are increasing interest rates. These changes are not simply for those with low credit scores. Even those who pay on time have received notices that their limits are being dropped or accounts with no outstanding balance have been closed.

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As credit lines decrease, utilization ratios are affected causing your credit score to plummet. This in turn makes your car and homeowner’s insurance rates increase. It also makes it impossible in today’s economy to qualify for refinances, car loans and mortgages. Worse, many employers use credit reports as a factor when hiring new workers.

Rising Bills, Decreased Salaries

One of the biggest hurdles challenging people is the increasing cost of living. As bills rise, salaries for many have remained level or decreased. Lowered credit scores mean higher insurance bills. Increases are also occurring with electricity rates, heating oil, propane, gasoline and groceries. People simply cannot afford the increases without a substantial salary increase.

Seek Help Early

Companies offering debt relief solutions are busier than ever. Many debt relief companies have to double their workforce to keep up with the increased demand.

If you need help with your mounting debt, it is best to seek help early. This helps counteract any wait you will face getting through to a debt relief program. Moreover, it helps ease your stress load by knowing you are taking control before the economy worsens.

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Ways to Avoid Bankruptcy

Before making any plans, see a certified financial advisor. This person has experience on getting out of debt and can help you pick the best possible plan.

• Debt loans: Loans to consolidate your debt are a great way to pay off debt and reduce interest. However, they can be hard to get if your credit is already bad. Bad credit loans are an option, but beware of high fees and interest rates.

• Debt management: Debt management plans (DMP) help you pay off your debt in full. DMP advisors work with your credit card companies, hospitals and colleges to lower interest rates and reduce fees. You make monthly payments to the debt management company and they pay your bills for you.

• Debt settlement: Debt settlement advisors negotiate with companies to whom you owe money, including credit card companies, to reduce the amount of money you owe by up to sixty percent.

Bankruptcy is always a possibility, but it should be treated as a last resort. With a bankruptcy, it is on your credit report for ten years. Legally, you stand to lose personal possessions, including clothing, vehicles and possibly your home.

Stay Out of Debt

A high percentage of people who get out of debt wind up making the same mistakes, and before they know it, they are back in debt.

Once you are out of debt, avoid all credit card offers. Use prepaid credit cards or secured cards. Take a debt management course to prevent future financial mistakes.

Our society has grown to believe that bigger is better and it’s cost us. A smaller house isn’t a bad thing. They’re less expensive to heat and maintain and much more affordable in the long run. Smaller cars get better fuel mileage and many are just as safe as larger SUVs and trucks.

Learn to live frugally. Stick to budget meals. Don’t start relying on restaurant meals. Use free Internet service. Drop cable and use services like Netflix to watch movies instantly on your television or rent season box sets of your favorite shows. If you pay for Internet, you can watch many shows on the computer.

Living on a budget is a key component to making it in a tough economy. If you learn to spend your money wisely, you can avoid getting in over your head financially.