Cancer is expensive. But there are ways to effectively manage finances after a cancer diagnosis. This Quick Guide will cover practical tips to help you manage your debt, including how to: understand your debt; use strategies to pay off debt; use budgeting tools; find help with managing debt; negotiate with creditors; and handle debt left behind by a deceased family member.
Understanding the amount of debt you have, and what type of debt it is, is critical to paying it down. There are two important formulas to consider when assessing your financial health: your net worth and your debt-to-income ratio (DTI).
Financial Big Picture Spreadsheet (Note: This will open as an Excel document)
This ratio is important to both your financial health and to lenders, who use it to determine how risky it will be to offer you a loan. The higher your ratio, the fewer funds you have to save or spend, and the less likely lenders are to offer you a loan.
Understanding what type of debt you have is critical for understanding how to pay it down. There are two types of debt: secured or unsecured debt.
When you borrow money, your interest rate is the fee you pay for borrowing money. In 2020, the national average for credit card interest rates was 14.52%. If you spent $200 on an average credit card and did not pay off the balance by the end of the month, your balance would be $229.04. Being aware of the interest rates of loans or credit cards can help you prioritize payments and avoid unnecessary interest payments.
There is no one-size-fits-all approach to eliminating debt, and your plan should be specific to your needs and debts.
Prioritize which debts you want to pay off first. Many experts suggest prioritizing secured debt (e.g., mortgage, car loan, etc.) to make sure you can keep homes or cars while trying to regain financial stability. However, since these types of loans usually have the lowest interest rates, it could be a good idea to simply make minimum payments, and use any extra funds to pay any legal obligations (e.g., child support or court-ordered payments) and unsecured debt (e.g., medical bills, personal loans, or credit cards). Be careful when considering converting unsecured debt to secured debt, like a home equity line of credit (HELOC). A HELOC would be secured against your home, so failing to make payments could cost you your home.
Decide on a debt reduction strategy: snowball; avalanche; hybrid; or emotional impact method.
Whichever strategy you chose, make sure to keep paying the minimum amounts due on all debts, and put any remaining funds towards the debt you chose to pay off first. When it comes to debt reduction, math matters: keep interest rates in mind. For example: Billy is trying to pay down these debts:
Assuming Billy has an extra $2,000 a month that he can put towards paying off his debt, here are how the two methods differ:
There are many ways to create a budget.
Managing debt can be overwhelming. Fortunately, there are resources that can help. Professional credit counselors and financial planners can work with you at any income level.
Debt solutions might be helpful, but keep in mind they might negatively impact your credit score. Weigh options carefully. If your financial picture is really challenging, debt solutions may be worth the drop in your credit score. Beware of debt solution scams. Before working with a credit counseling agency, check with your state attorney general to make sure the company is legitimate.
Consider consulting an accountant to determine how debt forgiveness will affect your taxes. If you are able to negotiate with creditors to have a part of your debt forgiven, the Internal Revenue Service (IRS) could consider the amount that is written off to be taxable income.
If you get a bill that you are unable to pay, it is important not to ignore it. Consider contacting the creditor to ask for more time to pay the bill, or ask if the creditor would be willing to negotiate a payment plan or accept a lower lump-sum payment. Other options a creditor might offer you include:
When speaking with creditors, ask for a payment plan that you can actually afford. By contacting your creditors before unpaid bills get sent to collection agencies, you can keep these bills from affecting your credit score. Once you have reached an agreement with your creditor, make sure to get the agreement in writing, either formally (e.g., a signed contract) or informally (e.g., a thank you e-mail that also outlines what you understand is the agreement).
You can apply for financial assistance programs to help offset the cost of your bills. Visit CancerFinances.org for financial assistance resources.
When dealing with debt collectors or collection agencies, be aware of your rights. For example, debt collectors must send you an initial notice or your debt and are not allowed to threaten or harass you. For more information about your consumer rights and debt collectors, visit the Federal Trade Commission's Debt Collection FAQs.
If you are trying to handle the debts left behind by a family member, it is important to understand how rules might apply, depending on the type of debt.
When a person dies the assets that they leave behind are called their “estate.” The estate includes money, property, and personal belongings. The estate is managed by an “executor.” The executor pays any debts using money and assets in the estate through a court probate process. Creditors only have a certain amount of time to submit claims (varies by state). The executor reviews claims and pays any valid bills.
If there are still assets left, then the assets are paid to the beneficiaries. If there are more debts than assets, some debts are prioritized over others. State law determines which creditors receive priority over others; often, taxes owed to the IRS, taxes owed to state governments, unpaid child support or alimony, and medical debt are prioritized over credit card debt.
Family members may receive calls from creditors and collection agencies demanding payment for debts owed, even if they are owed solely by the deceased. However, creditors may not contact family members after the executor posts a notice of the death in a publication, like a local newspaper, which tells creditors who to contact about any debts.
Executors or family members should organize the person’s accounts, and:
There are some situations in which family members may be responsible for paying the deceased person’s debts. For example:
Most states protect certain assets for family members, such as:
For more information about managing finances after a cancer diagnosis, visit:
Disclaimer: This handout is intended to provide general information on the topics presented. It is provided with the understanding that Triage Cancer is not engaged in rendering any legal, medical, or professional services by its publication or distribution. Although this content was reviewed by a professional, it should not be used as a substitute for professional services. © Triage Cancer 2020
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