Guest Post: Sarah Brooks

The five key challenges of a personal debt crisis

Guest Post: Sarah Brooks
Personal financial administration is based on some of the same money management disciplines used by organizations, businesses and even governments.  So it isn't surprising individuals and families encounter some of the same difficulties staying on track as those experienced by these larger entities.  And with personal bankruptcy filings on the rise, it's clear more and more people are coming to terms with personal debt crises.

Each case is unique, but there are similarities in the way debt problems manifest themselves for individuals and families in financial trouble. Employment inconsistencies and financial missteps are among the most common causes of financial difficulties, leading to these key challenges overcoming personal debt crisis.

Changing Your Spending Habits

Drastic remakes are sometimes required to alleviate personal financial crisis.  Until you have a firm grasp on your situation, cut spending on non-essential items.  In some cases, you may need to find new ways to get things done.  Household expenses like recurring television contracts or house cleaning services, for example, furnish prime targets for cuts that ultimately lead to more budget-friendly spending habits.

Catching Up

Managing your family budget is one thing, but you might need to erase some existing debt before your long-term budgeting strategies kick-in.  If your outstanding debt is weighing you down, it must be eradicated before you'll see relief.  Mortgages and credit card balances are prime targets for debt reduction, especially if you are carrying balances and making minimum monthly payments.  In order to catch up, you'll need to find ways to accelerate your payoffs, especially on credit cards.  Paying only the minimum payment keeps you in debt for many years, and adds excessive interest charges to your personal ledger.

When mortgage payments are beyond what you can consistently afford, it may be necessary to refinance your home loan to avoid arears and foreclosure. Though doing so may extend your overall repayment period, lowering monthly obligations allows you to gain ground in the short term, which strengthens your personal cash flow and eases immediate pressures.

Realistic Budgeting

Once you've tackled some of your outstanding debt, it is essential to revaluate your budget so financial distress doesn't set in again.  An essential rule for long-term budgeting is to consistently spend less than you earn.  It is the only way to protect your long-term liquidity and can help you build surpluses to invest or apply to outstanding debt.

The first step to crafting a workable personal budget is to account for your spending.  Start by designating categories, like household, food, entertainment and so on. Recurring monthly expenses should be funded first, leaving discretionary budgets for infrequent purchases and pop-up expenses.  By sticking to your balanced budget, you'll avoid the types of overages that got you into trouble to begin with.

Protecting Credit

Depending on the gravity of your situation, you may be facing lasting credit issues as a result of your personal financial crisis.  Protect your rating at all costs, by taking proactive measures with your creditors.  If unseemly consequences are unavoidable, stick to payment restructuring agreements and other debt-management arrangements you've accepted, so your problems don't continue to multiply.

Saving and Investing

It can be hard to think about long-term financial security during lean times, but investing for the future helps hedge against further fiscal instability.  As you begin to emerge from financial crisis, establish a cash account containing several hundred dollars for emergencies.  Cash on-hand decreases pressure to use credit cards when unanticipated expenses challenge your budget, so an emergency fund supports lasting solvency.  And investments, however small they may seem, allow your resources to grow, adding to your financial safety net.

Debt crisis prompts changes in the way individuals manage their finances, requiring creative approaches to avert personal fiscal disaster.  Proven money management techniques, including spending freezes and reimagined budgets, furnish lifelines for those facing debt challenges.  By sticking to these time-tested methods, most consumers experiencing financial difficulties are able to emerge from over-indebtedness without catastrophic consequences.

Author Bio:This is a guest post by Sarah Brooks from She is a Houston-based freelance writer and blogger. Questions and comments can be sent to brooks.sarah23 @