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Managing Your Debt and Finances

Understanding how to manage debt can help your overall financial situation.

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Distressed Homeowners

Two new federal programs can help make mortgage payments more affordable.

The Making Home Affordable Program allows eligible homeowners to refinance. This is designed for homeowners who are current on their mortgage but can’t refinance to a more affordable interest rate because the value of their home has dropped. You must be current on your Fannie Mae and Freddie Mac insured mortgage. Contact your lender if you believe you are eligible.

The Mortgage Modification Program is designed to help people at risk of foreclosure because of serious hardship such as job loss, high health care costs or a significant increase in mortgage payments. If you are eligible, your mortgage payment can be reduced to 31 percent of your income. Contact your mortgage company to learn if you are eligible.

See also: Picking the right mortgage options >>

Making Payments

While it may seem overwhelming, a number of resources are available — such as home equity loans and reverse mortgages — that can help you reduce, pay off and control your debt, and avoid foreclosure, offering you more financial freedom to save for your future. If you’re in the market for a new home, make sure your mortgage payments don’t exceed 30 percent of your income.

  • Talk to your lender — the sooner the better. It's much easier to negotiate before you get too far behind. Many lenders will work with you to set up a new payment plan that you can live with.
  • If you have an adjustable-rate mortgage that may adjust upward in the near future, consider refinancing. You may be able to refinance your mortgage with a reputable lender and get a fixed-interest loan. The payments may be higher but that should be better for you in the long run.
  • Talk with a credit counselor. Good counselors can help you develop a budget to help you manage your mortgage payments.
  • Talk with a housing counselor. The U.S. Department of Housing and Urban Development supports some housing counseling agencies that provide free assistance about how to keep your home out of foreclosure.
  • Sell and downsize. This may sound painful but you can try to sell your home, pay off the mortgage and use your remaining equity to buy a more affordable place to live. This is better than losing your home and all of your equity.

Unforeseen life circumstances can sometimes derail the best-laid plans, but a number of options and resources are available to help you reduce and better manage your debt and get you on the road to recovery.

Make your credit work for you. Take action and make a solid plan to grow your savings, shrink your debt, and get your spending under control and stay within the limit.

Sign up for AARP's Money Newsletter >>

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