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There’s a great deal of online advice discussing debt and its various forms, as well as how to best overcome it. Of course, the solution seems simple. Pay back your debt, and the outstanding balance is resolved.
But it’s unlikely that you’re in debt because you had the ability to do this. Furthermore, debt hardly comes in one sole form; no questions asked. Debt can be personal and impersonal, namely, debt can be owed to those you know, or companies and institutions you are a client or member of. Note that these terms serve the purpose of this article, referring to the difference between debt owed to a professional lender or firm you hold credit with, or owing a friend or relative respectively.
When you owe a debt to both of these kinds of creditors, it can be hard to plan your way out of it. So, untangling the web of financial obligation is the first place to start, and making sure to distinguish between the types of creditors you have is key to that.
In this post, we’ll try to help you with some principles to get started. We will divide them into two categories, and offer a range of tips to help you manage each one; including how your strategy may differ. Without further ado, please consider:
Handling Impersonal Debt:
Impersonal debt tends to have a clearer structure to resolve than personal debt. When you owe a debt to companies, you are unlikely to be the only person in that position. This is why many brands will offer a clear path or have cost in debt mediation measures, perhaps opting for a third-party debt collection agency, to clear the balance.
Perform a careful budget and cut back on costs where you can.
It’s important to perform a careful budget and to cut back on costs, and if suitable, to present that budget to your creditor. This will help you identify the money you have spare after your priority bills have been taken care of – because of course, paying debt is advisable only once you have a roof over your head and enough to eat.
Costing everything can help you see where you’re wasting money, identify exactly when you have income, and use that to determine the cash you’re able to spend.
Set up a payment plan.
A payment plan can be tremendously useful to utilize. If you contact a creditor as soon as you can, and let them know your situation, they tend to feel incentivized to accept the offer. Approaching them first is a good move, but approaching sooner rather than later is the next best thing.
In some cases, a payment plan can help you stretch a debt over months or even years depending on its size. A creditor is much more likely to accept this than to offer an immediate discount to the debt so you pay it off today. As such, make sure to be realistic, and ensure you have enough to live.
Prioritize or collate your payments.
It’s essential to make sure that you list all of your debts and creditors, including the exact amounts you owe, together in one place. Then you can determine which payments will be most important to make first and foremost. In some cases, this can be better handled by taking the time to:
Speak to a debt charity.
Debt charities are known entities, can provide you impartial advice, help you build a budget planner, and in some cases contact creditors on your behalf, aiming to show them that you’re trying to take the initiative. Some popular charities known globally include StepChangeDebt in the UK.
These debt charities may also offer you a route to consolidate your payments into one monthly sum which they will then pass on to your creditors. Sometimes, creditors will approve of this. It can help you untangle the web of who is owed what.
Manage your credit score.
It’s important to manage your credit score, or at least to be aware of what that is. There are many free agency sites but note that your credit score may be different based on the services that generate a picture of your financial health. So a particular service might check your Equifax score for free, or you may go to them personally. Managing a credit score is a good way of seeing what debts are impacting your rating, some you may have forgotten about.
Handling Personal Debt:
Personal debt is, generally, more difficult to handle. Owing a friend or a relative is never a nice feeling, particularly if we can’t pay them back at this moment and as such, have tainted the relationship. Of course, if someone is intimidating you for your money, then that’s a different matter, and breaks harassment laws – never be afraid to visit law enforcement if dialogues break down and you need help. There are many steps before that would ever occur however; and it’s rather unlikely to:
Discuss the nature of the financial problem.
It’s good to discuss the exact nature of the problem to show you understand, including how much you owe, and what that money was for. If you came to an agreement before you can stick to it, such as your promise to pay your friend back in three installments after they utilized the best bail bonds service for you.
If you’re having a tough time paying it back right now – discuss why. It might be that your car broke down and you needed a quick fix so you could keep attending work and earning – show them the receipt of this if you trust them. It might be that your boss has limited your hours at work, which is why taking some time to reformat your income with another part time job has been important. If you’re genuinely sincere and apologetic, your close family member or friend will no doubt give you some slack.
Offer a payment plan, or perhaps something of equal value.
Payment plans can work with friends or relatives, too. It might be that you pay them $200 a month for a few months until you’ve paid them back. They’re much more likely to go for this than to constantly ask you where the money is.
Alternatively, unlike creditors in the business world, a friend or relative may even be happy to take or gain something of equal value to the money they lent you. This might be volunteering to work with them for free for a day or two if they have a small business to run, or perhaps giving them those tickets to the sports game you were interested in. This isn’t direct financial advice of course, and they’re well within their rights to refuse it, but it can’t hurt to ask.
Keep consistent communication.
Try to keep consistent communication with your friend. Answer their calls, and continue the friendship. Don’t avoid them just because you owe them money, that gives the impression you won’t pay it back, and it makes a mockery of their willingness to lend you in the first place.
Consistent communication, always being present and reachable (within reason), this shows your intention is in the right place and as soon as you’re able, you’ll pay them back. This isn’t too dissimilar from the step we recommended for dealing with corporate creditors – if you take the first initiative towards rectifying the problem, then people tend to look at you more favorably. It also shows where your priorities lie.
Make goodwill gestures where appropriate.
A goodwill gesture can be a nice move to make, and of course, this is only possible when you’re in debt to someone you know. So for instance, you might not be able to cover the debt completely this week, but if you’re out to lunch, you might pay for their sandwich and coffee.
When you’ve paid off the debt, you might help them out in a similar situation if they find themselves there. A goodwill gesture can be a nice means of not only delaying the bitterness that comes from money problems between people but might give you some more slack to help you gather the funds.
This isn’t to say our lunch example is a simple tactic to placate someone in your life, but as you expect, it shows you’re not blocking them out because you’re embarrassed or unwilling to pay.
Accept the relational repercussions; learn the value of borrowing from friends or family.
Unfortunately, this situation is more of a life lesson than anything. Borrowing from friends or family, unless you really have to, can get messy quick. This means you may have to just accept the familial or friendship strains that occur as a result of your action. In the long run, you’ll avoid taking money with haste, and consider the true cost, outside of the fiscal responsibilities, of falling into debt.
With this advice, we hope you can better divide and deal with both personal and impersonal debt. It’s never easy to owe someone or something, but we hope this insight gives you the right approach to move forward despite that: