Bills.com - 5 Ways to Evaluate Debt, Live Within Healthy Debt Threshold

San Mateo, CA, April 05, 2009 --(PR.com)-- With the economy in a lingering recession, Bills.com offers Americans five questions to find out if they truly are carrying too much debt – and three steps to get rid of that debt.

A "yes" to one or more of these questions signals trouble.

Are you having trouble making even minimum payments on credit card and other debt?

Are you behind on any monthly payments?

Are you getting calls from collectors?

Do you find yourself juggling credit card balances to pay off other debts and bills?

Are you carrying credit card balances to pay for necessities (food, housing, utilities and auto payments)?

Three steps can help individuals live within a healthy debt threshold.

1. Understand assets, debts. To understand your own financial situation, start by tallying income and expenses. Detail ongoing, fixed monthly expenses such as rent or mortgage payments, and then add variable expenses that are "must-buys." These include food, gas and medicine. Next, set up categories for savings (prioritize building an emergency fund), unexpected expenses and – if enough remains – entertainment.

Subtract total expenses from monthly net income (the amount left after taxes and other paycheck deductions such as health insurance and 401(k) contributions) to find cash flow. If the bottom-line cash flow is negative or does not help achieve your short- and long-term financial goals, immediately commit to paying off debt. Aim for total monthly debt payments to equal no more than 15 percent of monthly income.

2. Pay off bills. Credit cards charge an average interest rate of 14 percent.[1] A missed payment can send the rate skyrocketing to 30 percent or more. The result can be interest that mounts up and becomes unmanageable.

Knock out credit card and other unsecured debt by following this plan:

· Create a spending plan. Understand how much money you have to live on each month.

· Discipline yourself to live within the budget. If you need to – or if you cannot pay off your credit card bills in full each month – use cash or a debit card for daily purchases. "Get out of the mindset that you can buy whatever you like and pay it off later," Ewing urged.

· If you have credit card or other unsecured debt, starting by paying the most on the debt that carries the highest interest rate while making minimum payments on other debt. When the debt with the highest interest rate is paid in full, implement the same strategy for the next-highest-rate debt. Always pay secured debts (mortgage, car) first.

3. Get help. An individual's best resource is handling debt him/herself, because it protects credit scores. But if that is impossible, understand existing debt relief options.

· Borrow from family or friends. Be cautious, and make sure to get any agreements in writing.

· Negotiate. Those who cannot make even minimum payments on bills can try calling credi­tors and asking for temporary hardship status. Some creditors may work out payment plans. While creditors are under no obligation to negotiate, it is often in their interest to do so, since it makes payoff more likely.

· Get debt settlement help. A debt settlement firm negotiates on consumers' behalf to lower balances due. Consumers pay the debt settlement firm a portion of the savings, which can be up to half the full amount owed. Debt settlement typically provides better repayment terms than a Chap­ter 13 bankruptcy filing – and with no permanent bankruptcy judgment. Debt settlement will have a negative impact on credit ratings, however, and is best suited for those with large debt burdens who are unable to make required payments.

· Consult a debt consolidation service. Beware of high fees, and check the service's reputation. Those working with a debt consolidator will likely sacrifice two things: the freedom to open and use additional credit lines and, in many cases, their credit profile. The service usually will ask consumers to make one monthly payment, which it will use to pay creditors.

· File bankruptcy. Truly a last resort, bankruptcy destroys a credit rating for many years. Bankruptcy is more difficult to obtain than it used to be, and more expensive. Bankruptcy reform enacted in 2005 sharply curtailed filings for Chapter 7 bankruptcy, the type of bankruptcy that eliminates most consumer debt. Chapter 13 bankruptcy filings, which re­quire consumers to repay debt on repayment plans, are available to those whom their state determines, through its means test, have enough in­come to pay back at least some of their debt. Repayment terms generally are less favorable than those found with debt settlement.

[1] http://www.indexcreditcards.com/creditcardmonitor/

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