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People fall into debt for a number of reasons. Maybe you lost your job, dealt with an illness, or got divorced. However you got to this point, you can get yourself out by restructuring your debt. With most creditors, if you explain your situation, they will be willing to work with you. They can extend the time you have to pay your debts and reduce your minimum payments to make them more affordable. Also consider these options:
- Debt consolidation and credit counseling. Sometimes professional help is exactly what you need to begin managing your debt. Non-profit credit counselors are available pretty much anywhere and can analyze your debts and income to help you find a way out. Credit counseling is usually available for a reasonable fee. Debt consolidation is offered by private, for-profit businesses that pay off all your debts with one, lower-interest loan. You then have only one creditor to worry about, and you usually save a bundle in interest.
- Debt prevention. It's no secret that the best way to get out of debt is not to get into it in the first place! The Federal Reserve estimates that Americans owe, on average, 20% of their incomes. Credit cards are a big culprit behind this phenomenon. That's why a prepaid cash card is a sensible, practical alternative to credit cards for those struggling with debt. Consider getting rid of your credit cards altogether except for your prepaid cash card.
- Repayment time. You didn't fall into debt and credit trouble overnight, so it might take a while to pay off your debts. Consider how long repayment will take. Most credit counselors advise that, if it will take you more than 5 years to repay, you might want to consider bankruptcy. Even if you declare bankruptcy, you can still qualify for a prepaid cash card.
Dealing with Creditors and Credit Reports
Be aware of your rights and questions as a consumer when it comes to debt collection practices. The FTC publishes many free brochures on the subject. If you know your rights and the boundaries set for your creditors by the law, you are much more likely to negotiate with them successfully. Try to work out a mutually advantageous repayment plan with your creditors before they have referred you to a debt collector. At that point, it may be too late. The earlier you intervene, the better.
Your credit report is the single biggest determinant of your creditworthiness. Thus, it's important to make sure the information contained in it is fair and accurate. Take advantage of your free annual credit reports from all three credit bureaus to verify the information in your report is correct. Dispute any discrepant items in writing, and your creditors are required to remove these items by law. If you suspect unfair credit reporting or other unlawful behaviors on the part of your creditors, file a complaint with the FTC.
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