Managing credit card debt can become very difficult if you allow the balances on a number of credit cards to approach their credit limits, start missing payments, or find yourself needing to get cash advances on one card in order to make the minimum payment on another. Sometimes problems managing credit card debt occur solely as the result of one or more unplanned events such as loss of a job, the uninsured loss of a major asset such as an automobile, or a natural disaster such as flood. In most cases however, credit card debt has risen slowly over months or years until the cardholder suddenly notices that their credit card balances have begun to spiral sharply upward as late penalty charges are added to already high balances, and making even minimum payments on all cards sometimes requires taking on extra debt extra debt through “payday loans” or other high interest sources.
What to Do When You Become Aware You Have a Growing Credit Card Debt Problem
Unfortunately, the first reaction of many individuals when they realize that they are beginning to have serious problems managing credit card debt is a combination of guilt, fear, and simply not knowing what to do. That combination often makes them unable to take any immediate actions to resolve the problem. Delays in taking action always makes the job of bringing credit card debt under control more difficult and time-consuming. The first step on the road to financial security is to shine a bright light on the problem. Here how to get started:
- Clear a table, and make a stack of all of your credit card statements, student loans, home mortgage, and other installment loan contracts such as auto loans.
- Copy the outstanding balances, interest rates, minimum payments, and other pertinent information for each debt onto a single sheet of paper.
- On a separate sheet of paper, put your monthly income at the top of the page. Below that, put three list of expenses.
- In the first list, include expenses that are always the same every month such as your cable or internet service, rent, club memberships, etc.
- In the second list put estimates of monthly expenses that vary from month to month such as groceries, public utilities, clothing, transportation to and from work, and discretionary spending for entertainment, etc.
- In the third list put expenses that are not paid monthly, but which occur on a regular basis year after year. This list should include costs such as tuition payments, taxes, insurance policies, costs related to vacations or attending family reunions, etc.
- As a final step, order a free copy of your credit report from one of the three national credit reporting agencies.
Working With a Qualified Debt Counselor
Getting all that down on paper may not make you happy, but it will make it easier to take the next step toward managing credit card debt, finding an experienced and qualified debt counselor. Here are some suggestions:
- Call one or two of your credit card issuers and ask them for lists of nonprofit organizations providing debt counseling services in your area. Federal law requires credit card issuers maintain such lists for every community they serve.
- Improve your chances of getting a well-qualified counselor by focusing on organizations that have been in business for at least five years in the same location. Before visiting any of the organizations meeting that criteria, run their names past your community’s Better Business Bureau or your state’s Office of Consumer Affairs.
- Walk into at least two of the organizations Okayed by the Better Business Bureau or state Office of Consumer Affairs to pick up a brochure and to get a feel for each place. The brochure should include a clear list of services provided and fees. It also should provide a list of the organization’s national accreditations, and the training and accreditation requirements for debt counselors.
Working Out the Recovery Options
When you have selected an organization to work with, set up your first appointment. Bring your credit report and the two sheets of paper containing your debts, expenses, and monthly income to that first session. Much of the first one or two sessions will involve analysis of those documents and working out a livable household budget that includes savings for non-monthly payments, savings for unexpected emergencies, and an allocation for debt repayment. Based on the availability of funds for debt repayment, the debt counselor will present recovery options that make sense for your financial circumstances. Some of those options might include:
- Providing guidance on how to approach your creditors to request lower interest rates or other modifications to existing credit terms;
- Helping you to prioritize the debts you should focus available resources on first;
- Offering you support in the form of money management training courses or literature;
- Suggesting that you explore the possibility of a debt consolidation loan, and providing guidance as to the terms you should be able to get, and the banks or specialized lending organizations you should consider applying to;
- If your income, debt level, or credit score make a consolidation loan inappropriate for your circumstances, the debt counselor may suggest enrollment in a formal Debt Management Program. In typical Debt Management Programs you make a single monthly payment to the plan provider, which in turn negotiates with your creditors to obtain lower interest rates, extended payment terms, and possibly forgiveness of accrued penalty charges or a portion of the outstanding balance. In exchange for those concessions your creditors are guaranteed a portion of the monthly payment the company receives from you. Your credit counselor will explain the impacts participation in such a program will have on your credit score.
- If you’re only practical option for managing credit card debt is to file a petition in Federal Bankruptcy Court, the debt counselor will explain which Chapter of the Federal Bankruptcy Code you should file under, the costs involved, and the impact filing will have on your credit score.