How to Get Credit Card Debt Relief

Many people have been sucked into the lure of enticing credit card offers only to find themselves in over their head. They enter into the world of credit with the best of intentions: paying off the balance regularly and taking advantage of the low or no interest tickler rate. What they find out fast is that one late payment or one dollar over the limit and their plans run amok, and they cannot figure out what happened.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Pen and paper to create your budget worksheet.
• Phone to call a consumer credit counseling (debt management) agency.

1. Stop charging stuff.

2. Assess your financial situation by completing a budget worksheet. Find out if your income is less than your expenses, or how much wiggle room you have left.

3. Make a budget and stick to it. If your income is not enough to cover your basic living expenses, make some changes fast. If you have enough to cover your basic living expenses and credit payments eat the rest, tighten your belt and consolidate some debt.

4. Talk to a reputable credit counseling agency. Stay away from those who promise to negotiate the debt amount or to get a settlement for less. This is not good. Work with those who will negotiate lower interest and make the payments for you while you need only make one payment to them.

5. Take classes on how to manage credit. Learn to prevent history from repeating itself.

6. Sell your stuff. If you can downsize your home, do it. If you can sell any of the stuff you bought on credit or otherwise, do it. If you can take out a loan on your 401K, do that. At least you will be paying yourself back at a better interest rate than you are paying the creditors and not getting any benefit from it at all. Consider taking a second mortgage on your property to take advantage of that interest on your taxes.

7. Pay a little more than the minimum. Once you have a budget down and are sticking to it and you come into extra money, put it toward your debt. When your minimum balance due shrinks because of your payments, don't reduce your payments, but maintain them. You will be amazed at how much faster your debt is shrinking. Credit card companies are literally banking on you making only the minimum payment due each month. They know that they have a long term cash cow in you.

Tips & Warnings

• If the debt collectors start calling, talk to them. It probably won't help your situation much, but at least they will be more willing to work with you than if you ignore them.
• Credit card companies must follow the Federal Fair Credit Reporting and Debt Collections Act. This means that if you do not wish to speak to collections or receive communications from them, you have a right not to be harassed or contacted. You must send the agency or credit card company a certified letter in writing requesting that they cease contacting you. If they call you at work, you may tell them verbally to stop contacting you there, and they must stop contacting you there or you have a right to sue. These steps in no way remove your obligation to repay your debt, but it will stop the annoying phone calls.
• If you can manage to pay some but not all of your debt and you are trying to avoid bankruptcy, pay your highest balance credit cards first. The interest rate on these add up much more quickly than on the cards with a lower balance.
• If you choose to take out a loan on your 401K and you quit your job, get laid off or otherwise stop contributing or paying it back, you will be responsible for paying at least 20% in taxes on that money you borrowed.
• If you get a second mortgage or a home equity line of credit, you must be disciplined to not fall into the debt trap again. This time, your house is on the line. If you fail to meet your financial obligations on your second mortgage, you run the risk of foreclosure and may lose everything.
• Avoid at all costs those companies who claim to be able to settle your debt for 40-60% of its worth. They are doing nothing for you that you cannot do on your own. Credit card companies will make a settlement offer to you directly for a fraction of what you owe them. This, however, will remain on your credit report negatively for seven years or more. Moreover, the amount that you settle for minus the amount of your debt is the amount that you must claim as income on your taxes for that year. So, if you settle your debt for $6000 less than what you really owe, you will have to claim that $6000 as income and pay taxes on that money. The companies who tell you that they can settle your debt will often times stockpile your money until they have a lump sum in which to make a settlement offer. Since they are taking over the debt collection phone calls, you have no idea that they aren't paying a dime to your creditors until they make the payment offer. If you decide to part ways with these companies, they may keep your money and pay nothing and you still owe the entire amount, even though you have been making "payments."

Resources

• A reputable debt management organization
• Another excellent source for debt management