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Steps to take at the beginning of financial challenges

Although there have been some signs of hope that the American economy is turning around, many Massachusetts families may still be facing financial challenges and needing to take stock as to how best to eliminate debt quickly. Although filing for bankruptcy remains a viable option for anyone who needs debt relief, there may be some who for whatever reason would like to explore alternatives first. In this respect, one expert recently offered debtors some helpful tips in an article on how to right their financial ship.

The first of the two tips that the expert offered debtors was to make a budget, or at a minimum at least know how much income is coming in and how that money is getting spent. The second tip was to avoid credit cards.

The expert also encouraged people who are struggling to make sure to contact their creditors before they start missing payments. Creditors may be sympathetic to a person who proactively asks for help, but are less likely to be sympathetic once payments are missed. To that end, the article also encourages debtors to be proactive in seeking help from qualified and reputable credit counselors.

The article also encourages debtors to use a variation of what some call the "snowball" technique to pay down debt. While some experts encourage people to pay off the debt that has the lowest balance first, this article instead argues that debtors should pay off the loan with the highest interest rate first and then from there on each debt individually.

Finally, the article encourages people to be leery of businesses that market quick and easy "credit repair" schemes and to use bankruptcy as a "last resort".

While no one wants to file bankruptcy, it may be unfair to call it a "last resort". Bankruptcy is the only process that offers debt relief effectively backed by the power of the federal court system. While some Massachusetts families may want to explore alternatives, bankruptcy may need to stay on the table as a viable option.

Source: The Bakersfield Californian, "Action Line: Be smart about debt relief options," Joey Fernandez, April 13, 2013

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