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How to Handle Unexpected Debt in 5 Steps

how to get out of debt in 5 steps
Encountering unexpected debt is stressful, especially if you have little to no savings or are on a tight budget. When unexpected debt lands in your lap, you need a step-by-step plan to tackle it. Here’s a roadmap to working down that debt.

Determine Whether It’s Short or Long Term
Is your debt temporary, long-term, or is the duration unknown? If you had to put an unexpected car repair on your credit card, the debt’s likely a short-term problem.

If you’re facing a catastrophic amount of debt due to medical expenses and permanent disability, you’ll have to rearrange finances permanently.

If it’s something like a job loss, then the term of financial duress is unknown.

Before you move forward, you have to know what you’re dealing with.

Occasionally, people will encounter devastating debt requiring bankruptcy, which isn’t an option to shy away from if it is necessary.

Make a Plan
Once you’ve got a full view of your situation, you need to make a plan to deal with the debt. Is it something you can pay off over the course of months or years? Will it make sense to take out a lower interest loan to cover it, or is the debt manageable as is?

Assess your current income and plan out how long it will take to realistically pay off the debt you have unexpectedly accrued.

Call Your Creditors
Once you know what you’re dealing with and you have a plan, it’s time to face the music and call your creditors. Be straight with them about what you can do and try to remain non-emotional when you talk to them.

If you have a trusted friend or family member that can handle this conversation for you in a more rational way, consider providing permission for them to handle the call for you.

At this juncture, it may make sense to stop using your credit cards to avoid more debt accrual.

Shuffle Bills Around
If your debt is short-term, you can temporarily shuffle bills around to make sure you’re covered. In certain situations, you can also defer payments without a penalty. Most auto loan companies will let you do this, and depending on your job field, you can sometimes defer student loans as well.

With other bills, it won’t matter if you make a lower payment. If you have credit card debt, simply make the minimum payment during your short-term crisis. If it’s a staggering utility bill, make arrangements to catch up in future months.

Adjust for Windfalls and Say Goodbye to Debt
Assuming your debt is short or mid-term, you can also course correct when you receive an influx of money. This can be in the form of a work bonus, inheritance, or tax return. Before you pay everything off, try one final time to negotiate with your creditors.

Have you tried this five step plan? Did we miss a step? Let us know all about your successful strategy in the comments.

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