How to Reduce Credit Card Debt Without Bankruptcy
Your credit score is more than just a number--it represents how financially responsible you are. As of November 2009, a healthy credit score is 620 or higher. A credit score any lower can hurt your chances of obtaining loans, renting an apartment or even getting hired. But although late payments negatively affect your score, the worst thing you can do is declare bankruptcy, according to "The Credit Repair Handbook." A personal bankruptcy remains on your credit report for 10 years, making it tough to obtain new credit. Avoid filing for bankruptcy by establishing payment plans to pay off debt.
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Things You'll Need
- Credit report
- Calendar
- List of nonprofit credit counseling services in your area
Instructions
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Get your credit report. Your credit report will have a detailed list of current and past accounts, indicating which are delinquent. There are three national credit reporting agencies: Equifax, Experian and TransUnion. You are entitled to receive one free copy of your report per year from each agency. Make a list noting all of the credit card accounts for which you still owe money.
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Write letters to your creditors. Rather than ignore phone calls and letters from bill collectors, write a letter to each creditor you owe money, and explain when you can begin paying off your balance. Your letter should include your name, address, social security number, date of birth and an explanation of why you missed payments on your account. Although it will not reduce your debt, a letter can reduce constant calls from collectors, and open the process of establishing a payment plan.
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Set up a payment plan. Your lenders may allow you to set up payment plans to help reduce your debt. Payment plans are a set amount of money paid monthly to creditors until your balance is $0, or some other amount agreed to by both parties. After completing the payment plan, the lender will usually place a "paid charge-off" notation on your credit report if your account had been delinquent and referred to collection, or a "paid as agreed" notation if the lender had not already closed your account at the time you established the payment plan.
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Be sure to pay on time. Paying on time is crucial to help raise your credit score and reduce debt. In order to get out of debt you must pay more than the minimum amount, according to "The Credit Repair Handbook." Simply paying the minimum barely makes a dent in your overall debt due to interest charges, as well as additional penalty fees if you made late payments.
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Create a calendar to organize payment due dates. It is easy to forget deadlines, especially if you have more than one credit account. To keep track of your due dates, use money management software or write down payment dates on a calendar that is in plain sight.
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Visit a nonprofit credit counseling service. A credit counselor can assist you in digging out of debt without resorting to bankruptcy. Be wary of any counseling service that requires you to pay a monthly fee for help--the service may be a scam or, at best, simply another expense you cannot afford.
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