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Monday, October 10, 2011

When you do not have enough money to cover your family's basic living expenses and pay all your creditors, you face some difficult financial decisions.

When family income is reduced, your spending habits must change. The sooner you change, the more likely your financial problems can be lessened. Your family should be part of the decision-making process, since their cooperation is essential to carry out the plans.

When your bills exceed the money available to pay them, you will have to develop a revised payment plan in order to repay your debts. After you have a plan, you will have to contact your creditors and explain your situation. Creditors will usually work with you because they want their money.

Your past experiences with creditors are important. If you have consistently paid bills when due, creditors will be more cooperative than if you were late or did not make regular payments. Creditors are in the business of lending money. They want to keep your business, but also want to get paid.

Before you can talk to your creditors, you need to take a hard look at your situation and make some decisions about how much and when you can pay. First, answer the following questions:

* How much income can you count on each month?

* How much money is needed to cover your family's essential monthly living expenses?

* How many creditors do you owe and what is the total amount you owe?

* How long is your present financial situation likely to last?

* What assets (savings or items that could be sold) do you have that could be used to pay off your debt?

* What debts are the most important to repay first?

* What debts could be satisfied by voluntarily surrendering, or giving back, the item?

You are legally obligated to pay all of your creditors. If you cannot pay all your bills, you must decide how much to pay to which creditors. One way is to divide available money and pay each creditor a share of what you owe. This is probably the fairest way, but it does not always work because every creditor must agree to reduce the amount they receive and extend the payment period.

A second method is to prioritize or list your creditors starting with the ones who will receive the most money. Think about the worst consequences for your family if certain debts were not paid or if less were paid than the amount due. Answering the questions below will help you decide.

* What will affect my family's health and security the most?

* What will you lose if the bills are not paid?

* What interest rate are you paying?

*How much do you still owe on the loan?

* Is a consolidation loan a good idea?

* What about your credit record?

If you still can't decide who to pay first, be sure to stop into your local Extension office and talk to the friendly staff. Cherokee County Extension office is located at 209 Centennial, Suite A, Cherokee, Iowa. You can also phone us at 712-225-6196.