New Years is a great time to set goals for the upcoming year. This past year in particular has been full of new challenges because of COVID-19, which has caused not only countless lives, but countless jobs lost and business closures. Unfortunately, the effects of COVID-19 have only begun to impact the economy and there is still much work ahead. However, there is always a bright side to look at. 2021 can be the year that you commit to moving past your debt.
Set Up a Budget
The first thing that you can do is to review your income and expenses to be able to determine where your money is being spent. This is an important first step in managing your finances. Once you have put your budget on paper, you can track how much you are spending every month and then determine if you can make some cuts so you can start paying off some of your debt. These simple habits can make a world of difference.
In both Chapter 7 and Chapter 13 bankruptcy, one of our roles at Steiner Law Group is to work with clients and formulate a budget. In Chapter 13, the budget can often determine how much must be paid into the Chapter 13 repayment plan, and its importance cannot be understated.
Improve Your Credit Score
If you wish to improve your credit score, you must first look at the negative remarks on your credit score. Anyone can pull a free credit report from annualcreditreport.com, and apps such as Credit Karma are very helpful for keeping track of your credit score. A lower credit score can affect how much you pay for a car and whether or not you can buy a home. It also affects if you can refinance a car or home for a lower interest rate and therefore lower monthly payment. Steiner Law Group has many clients with very high interest rates on their cars, which can result in an extra $200-300 or more a month in car payments. Figuring out what remarks are on your credit score can help determine which debts should be addressed to improve your credit score.
In some Chapter 13 cases, it may be possible to lower the interest rate on the car and lower the principal balance owed, so that the monthly payment is reduced, sometimes dramatically. In Chapter 7, a debtor can choose to surrender an expensive car and move on to buy a more affordable car.
Manage Your Debt
Having high debt is usually very stressful and difficult to manage. If you are able to create a budget and save some funds extra month, you can use some of those funds to slowly pay off your debts. Many credit card companies will work with you to come up with a payment plan, or possibly settle the balance for less than the full amount. Having past due debts impacts your credit score, so resolving these debts can result in a higher credit score, which affects the price you pay for credit.
Start Savings and Emergency Fund Accounts
It is important to put money away for emergencies and to put money away for savings so if you wish to make a large purchase, the funds will be available. An emergency fund account should ideally have enough for 3 months of expenses. Most Americans have $2,000 in savings – which is not enough for 3 months of expenses. Also, only 54% of Americans have a retirement account. Most financial advisors can help you set up a retirement account that works with your financial situation, as there are different types of retirement accounts. Also, many employers offer retirement options which are deducted from your pay.
If Debt is Unmanageable, Consider Bankruptcy
Bankruptcy is an excellent tool to eliminate or reduce all kinds of debt, including credit card debt, medical bills, tax debt, mortgage arrears, car repossessions or loans, old apartment lease debt, and other kinds of debt, and can help you bounce back from the financial distress caused by COVID-19. Chapter 7 is a quick process for those who do not earn over a certain amount and who do not own a lot of assets, and Chapter 13 is useful for catching up on mortgage arrears, in some circumstances lowering car payments, and can be a better chapter of bankruptcy for dealing with tax debt.
If you have questions about managing your debt in 2021 and if bankruptcy is a good option for you, please call Steiner Law Group at (410) 670-7060 to schedule a consultation.