What to Expect in the First 30 Days After a Debt Restructuring
Going through a debt restructuring can be a stressful time filled with uncertainty. The first 30 days after finalizing your debt restructuring plan set the tone for how well you will be able to stick to the plan and get your finances back on track. Here is what you can expect during this critical period and some tips for making the most out of your fresh start.
In the first few days after your debt restructuring, you’ll want to get very organized with your finances. This means gathering up all statements related to the debts that were restructured, as well as organizing bills, bank statements, income records, and any other financial paperwork you have.
You’ll want to set up a filing system, either physical or digital, to keep everything in one place. This will make it easier to keep track of payments and monitor your progress (Tips for Organizing Financial Paperwork). Apps like Mint or spreadsheet software can help you log your income, expenses, debt payments and track against your debt restructuring plan.
Making Your First Payments
Most debt restructuring plans require that you start making payments right away under the new terms. This means you need to be prepared to make that first payment within 30 days.
Set payment due date reminders for yourself and schedule automatic payments if possible. Automatic payments help prevent late fees if you forget and ensure payments are made consistently (Setting Up Automatic Bill Payments). Just be sure the payment amount being automatically deducted reflects what is owed under your new debt restructuring plan.
Reviewing the Fine Print
During the first month, take time to thoroughly review all the paperwork from your debt restructuring. Make sure you understand the exact terms, interest rates, monthly payments owed, dates payments are due, length of the repayment plan and any other details.
It can be tempting to just be relieved the process is over, but reviewing the details will help you spot any discrepancies and avoid surprises down the road. Jot down questions as they come up to clarify with your credit counselor or legal representative (What to Know About Debt Management Plans).
Revisiting Your Budget
Chances are your budget will need some adjustments to account for changes in income, expenses and debt payments under your restructuring plan. For instance, your monthly debt payments may be lower but you may also have less discretionary income if your repayment plan involves wage garnishments or liquidating assets.
Take time to create a new budget that reflects your current financial situation. Build in payments for all newly restructured debts, as well as allocating funds for priorities like housing, food, transportation and healthcare. A tight budget is key to successfully getting through your repayment plan without further financial issues (How to Make a Budget).
Looking For Ways to Supplement Income
Speaking of tight budgets – finding ways to supplement your income can provide a cushion in case unexpected expenses come up during your repayment period. Building up savings is also prudent so you have a safety net when the debt restructuring plan ends.
Ideas for increasing income include:
- Picking up a side gig doing rideshare driving, food delivery, freelance work or a part-time job
- Selling unused items around the home
- Renting out extra space in your home, such as via Airbnb
- Lowering monthly expenses where possible, such as negotiating bills or finding cheaper insurance
Every little bit of extra income goes a long way when following a regimented debt repayment plan (50 Ways to Make Extra Money).
Monitoring Your Credit
It’s wise to keep an eye on your credit report and score in the first month after debt restructuring. Make sure that settled accounts are being reported as such and check for any errors that popped up related to the restructuring.
You can obtain free copies of your credit report from AnnualCreditReport.com. Credit monitoring services also provide access to credit reports and scores along with alerts for new activity. Be sure to dispute any inaccurate information right away to avoid having it negatively impact your score (How to Dispute Credit Report Errors).
Adjusting Your Lifestyle
Chances are your lifestyle will need some adjustments in order to stick to your repayment plan and budget. It’s important to identify expenses that can be reduced or cut out entirely, at least in the short term. This may mean cutting back on dining out, entertainment, travel or other non-essential spending.
While it will require some sacrifices, viewing it as a short-term change can make it more manageable. And cutting excess expenses can free up more money to put towards debt payments. Developing frugal living habits now also prepares you for financial success when your debts are paid off (Tips for Living Frugally).
Understanding the Tax Impacts
Lastly, it’s important to understand the potential tax implications of your debt restructuring, specifically if any debt is being forgiven or discharged. This can result in tax liability if you don’t meet certain criteria (Tax Implications of Debt Restructuring).
Consult with a tax professional to understand if you may have to pay income taxes on discharged debt. If so, you may need to start making quarterly estimated tax payments. Failing to plan for these tax consequences could undo all the hard work you put into your repayment plan (Do I Have to Pay Taxes on Forgiven Debt?).
The first 30 days after finalizing a debt management plan set the tone for the months and years ahead as you work your way out of debt. Avoid complacency and stay motivated by focusing on the end goal of becoming debt-free.
Review your progress at least monthly and celebrate milestones along the way, such as when you pay off your smallest debt or when your credit score increases. Enlist friends and family to cheer you on and hold you accountable as well. With commitment and patience, you’ll get through your debt repayment plan (12 Tips for Staying Motivated to Get Out of Debt, Celebrating Financial Milestones).