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Credit Card Debt Help
Excessive credit card debt can cause you to have trouble paying your bills. You may be getting dunning notices from creditors. And your accounts may have been turned over to debt collectors.
Are you worried about losing your home or your car?
You're not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn't have to go from bad to worse.
If you or someone you know is in financial hot water, consider these options:
- Realistic budgeting
- Credit counseling from a reputable organization
- Debt consolidation
- Shifting debt to lower interest credit cards
- Debt negotiation
- Bankruptcy.
How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.
It depends on your level of debt, your level of discipline, and your prospects for the future.
Develop a Realistic Budget
The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your "fixed' expenses -- those that are the same each month -- like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary -- like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.
Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.
Credit Counseling
If you're not disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it's "nonprofit", there's no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make "voluntary" contributions that can cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
Debt consolidation
You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can't make the payments -- or if your payments are late -- you could lose your home.
What's more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay "points", with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.
Shifting Debt to Low Interest Credit Cards
Many credit cards have interest rates of 15% to 20% or even more. Excessive credit card debt at these interest rates will rapidly drain your financial resources.
Balance transfers from high interest cards to low (or even 0% interest) credit card can relieve you of that costly burden. But, most credit cards that allow low or 0% balance transfers require you to have a very good credit history.
Debt Negotiation
Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That's why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.
Bankruptcy
Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge -- a court order that says they don't have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can't satisfy their debts.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of November 2005, the filing fees run about $190 for Chapter 13 and $275 for Chapter 7. Attorney fees are additional and can vary.
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