Ignoring your debts is one of the worst things you can do
If you're struggling to pay your bills and have amassed more debt than you can manage, you may not be sure where to turn or what to do. Often, people with unmanageable debt aren't thinking clearly and don't make the best decisions. Here's a look at four of the worst things you can do when you're deep in debt that we commonly see among people that come to us for debt help:
#1 Tap into home equity
When you're covered up in debt, you may be wallowing in panic trying to figure out how to scrape together money to pay your bills. Some buy lottery tickets hoping for a windfall, some people gamble and still others tap into a home equity line of credit (HELOC) to raise money for bills. Creating more debt to pay other debt isn't wise. “Robbing Peter to pay Paul” and all that jazz. This can also put your home at risk and that's not what you want. Also, don't run up your credit cards to pay other bills. If you do end up filing for bankruptcy, it can be construed as fraud if you maxed your cards in the 90 days prior to your petition filing.
#2 Keep spending
If your money problems were caused by over-spending, this is something you need to curtail immediately. We've written before about shopping addiction and the need to reign this bad habit in prior to filing bankruptcy so you don't end up right back in trouble. For many, spending is a habit that comforts them when they're depressed. Being in debt can be depressing, but spending to alleviate that feeling only perpetuates your debt spiral. Or, you may think, “Since I already owe $10,000 on my credit cards, what's the big deal if I run them up to $15,000?” You may even see it as a last hurrah before you lose your cards. Don't do it. Cut them up and stop spending now.
#3 Borrow from friends and family
When you're scrambling to figure out how to get out of debt, you may automatically put your hand out to mom, dad or grandma for an assist. Or, you may appeal to friends that are better positioned financially. Good Old Ben Franklin said, “Neither a borrower nor a lender be” and that's good advice. Money issues drive rifts between people. You should rely on those closest to you for emotional, not financial, support. Even if you do find the money to pay them back, if you later file for bankruptcy, the Trustee can demand the funds back from them to pay your secured creditors. That won't make anyone you love very happy. Deal with your debt dilemma yourself.
#4 Put your head in the sand
Another common tactic we see people take when their debts have gotten out of hand is simply to pretend the problems aren't there. They take their phone off the hook to avoid collections calls, change their cell number (for the same reason) and toss letters from creditors into the trash unopened. Ignoring your debts will not make them magically go away and will actually result in escalation of collection efforts by your creditors because you refuse to dialogue with them. Even if it's only to tell them you can't afford to pay, take the calls. Otherwise, they assume you have the cash but are willfully not paying them for some reason. Head in the sand never works...
We caution our clients that there are no quick fixes for debt – outside of bankruptcy. That's really the only “magic bullet” to wipe out debts you can't pay with relative ease – but it's also a major step not to be taken lightly and that can't be done again and again in succession, so it should be done only under the direst of circumstances with the intent to get a fresh start and get back on the road to financial stability. But if you are at the end of your emotional and financial rope, a well-timed personal bankruptcy can be a fitting solution to get you out from under untenable debt for good. Contact the law offices of John T Orcutt for a free consultation on your unique debt circumstances.