When You Can't Make the Minimum Payment
Debt is one of those things that starts out innocently. You start to accumulate some debt a little at a time. Then all of the sudden it spirals out of control. As I have always said debt is not a problem until it is a problem. When it becomes a problem it becomes an overnight nightmare. How does it get there? I have always thought that debt creates rationalization. Rationalization that the problem will successfully be dealt with in the future. It is rationalization built on hope versus a solid game plan to get out of debt. In a sense it is the individual ignoring the problem.
You get to that point of desperation where the minimum payments can't be made. What is worst it is that dark secret that you haven't shared with anyone for fear of judgment. So, what do you do now?
There are four alternatives:
1) Put together a game plan as I illustrate in my book Deceptive Money. Think of all of your payments as one big payment that you are committed to paying until you have paid off everything. Once you pay one debt off take that payment and pay it towards the highest interest rate debt. Repeat that over and over until you have it paid off. This really does work and gets you out of debt quicker than you can imagine.
2) Use the above strategy. However, instead of making minimum payments, get a part-time job and pay more each month which speeds up the process. Remember it is only a season in your life. If you commit to it, you can be debt free.
3) Default Bankruptcy - I coined this term to describe the point where you stop making minimum payments and the accounts go into default. The debt will eventually make it to third party debt collectors In my book I refer to it as managing the debt collection process. You can chose to answer their calls or not. The risk that you run is to fold. First, you will ruin your credit. It won't be as bad as a bankruptcy but it will close. Second, the creditor/debt collector has 4 years (in the State of Texas - varies by state) to take legal action to collect the debt. Once you are past that time period, no one holds any power over you regarding that debt. However, you will always owe the debt.
4) Bankruptcy - Of course, this is the nuclear option. In my opinion it is the last resort.
Now I am not advocating that you walk away from your debt and not pay it. That is the furthest objective of this piece. I am simply giving options given a tough situation. Note I did not say go to a debt consolidation company. They are not a good solution. I write about that extensively in my book as well.