Negative Savings Again? Time to Consider Debt Management Options

For the first time in a little over a year, according to recent news reports citing reports from the Commerce Department, personal saving rates dipped into negative numbers, with Americans spending more than they earned in income. While some drew that extra from savings, others took on debt. Of those that took on debt, a good portion were adding new debt to old, something that may prove difficult to manage without a good plan. A good debt management plan is built upon a working understanding of the various debt management options available, as well as being aware of the current national economic circumstances, which may affect which debt management options will best serve the consumer.

Debt Management Options

On Friday December 21, 2007, the Commerce Department released data that indicates American consumers spent more than they earned in November, dropping the rate of personal savings back into negative numbers. A variety of factors contributed to this increase of spending and decrease of savings - the home heating season, higher fuel costs, which affects the cost of almost everything else, and the holiday season, among other things. It's worth noting that the trend, for many, is not just due to holiday spending, but rather an increase of living costs in general. Whatever the reason, if the recent economic trends have served to increase your debt significantly, it may be time to look at debt management options.

The first and simplest is to review spending and cut out unnecessary and wasteful spending. A tried, but true, method is to keep a spending diary, writing down every single expenditure, from the fuel stop on the way to work to the coins dropped in the vending machine during break time to the standard household bills. It can be amazing just how much that coffee on the way to work and other similar things we tend to do without too much thought can add to spending. Going over the household finances with a focus on eliminating extras can free up a significant amount of money that can be applied directly to paying off debt. When paying down debt with a budget and a plan, a surprising amount of progress can be made, especially with such high interest obligations as credit card debt.

When dealing with a high credit card debt burden, some people try to reduce the amount that they will spend on interest by applying for personal loans or other types of loans, such as home equity, that have a lower rates of interest, using the loan money to pay off the credit card debt. That can result in a significant savings. Another way to reduce the interest on a debt is simply to try negotiating with the lender or creditor. Often they are willing to reduce or even eliminate interest fees as a means of increasing the likelihood that the remainder of the debt will be repaid. Credit counselors can help those who feel uncomfortable with the negotiating process by contacting lenders of behalf of the consumer.

Debt consolidation loans are often used by those with a variety of debts as a means of bring all of the debts into a single monthly payment. A loan is taken, often backed by a house or other property, and used to pay off the other debts. In some cases, a significantly more advantageous interest rate can be had, resulting in savings over the long-term, particularly if the total debt burden is credit card heavy. It is important to note, however, if securing such a loan with a primary residence that there is a risk of losing the home if the repayment schedule is not met. Thus, this type of debt management strategy should be used when there is a solid repayment plan.

Similar to negotiating down interest is debt settlement. With debt settlement, however, it is not merely the interest that is negotiated down. If the financial situation is dire, with such potential fiscal disasters as bankruptcy looming on the horizon, debt settlement could offer a solution. While there are a few different forms that this particular financial agreement can take, the basic element is negotiating down the amount of debt. A lender would prefer to get a portion of the money back than none at all, and may be willing to settle a debt for a certain amount of cents per dollar or a specific percentage of the debt. This is the type of negotiation that may better performed by an experienced credit counseling agency or a legitimate agency that specializes in this particular debt management option.

How Current Economic Circumstances Can Affect Debt Management

There are a variety of factors to be watched in today's economic climate. The mortgage and lending crisis, the credit bubble blow-out potentials, the rising cost of fuel, the whispers of inflation and stagnation - all of these bear watching and can have an impact on which debt management strategies will be most effective.

As fuel prices rise, and the costs associated with the myriad of things, including food, that are affected by fuel prices goes up, the amount of money available to apply to debts may be significantly reduced. Budgeting may not suffice as a means of managing debt to the degree that it once did. It may be necessary to revamp or restructure the spending plan, perhaps adding a few hours to the work schedule in order to increase income. It may even be time to move up to the next level of debt management, and start negotiating with creditors about interest rates or find a skilled credit counselor to assist.

With the housing market correction that is taking place, in part due to a wave of foreclosures flooding the market with homes and driving down prices, the amount of equity in the home may not be what it once was, which can affect the amount of money that can be borrowed against it. The potentials for inflation and continued increases in the day-to-day costs of living and the fact that the home is put at risk if the repayment schedule is not met, may make this option one that should be used only if budgeting just can't manage to reduce debt on its own. If a debt consolidation loan backed by the home or a type of loan against home equity is chosen, it is probably best to borrow just enough to achieve the primary financial goal, rather than borrowing more than is actually needed.

Debt settlement and bankruptcy are not decisions to be made lightly. However, there are times when such options are the only ones that make sense. The important thing is to learn as much as possible about each process and its potential affects on the future credit opportunities. In either case, it is possible to rebuild credit standing, however it will take both time and effort, particularly in today's climate of tightening lending regulations. Because of the fiscal detestation that is accompanying the mortgage and lending crisis and the trembling of the credit bubble, lenders are starting to be much more cautious about extending credit and making loans.

Negative personal saving rates are not a good indicator of fiscal well-being, as it is a clear indication of spending more than is being earned. While paying down debt can be difficult during economically challenging times, it is well worth the effort, particularly in times like today, when it does not appear that the situation is going to improve any time soon. Many experts think the economic situation will get worse before it gets better, and if it does get worse, it will be easier to navigate those times if the burden of debt has been reduced.