Using credit is a normal part of life. Financing a car or large household items, using student loans for your education, or taking out a mortgage to purchase a home are things people do every day. Good money management requires that you know when and how to use credit wisely. The article on “Your Credit Rating” can help you make the right decisions. But if you find yourself with more debt than your budget can handle, there are steps you can take to get out of debt. This article gives you some self-help pointers and also directs you to organizations that can provide help when you are overwhelmed.
- Start by slowing or stopping your spending, especially spending on credit or debit cards. You may have to rely on using cash to control your spending.
- Make a plan to pay off your credit cards in full or to reduce balances so that monthly payments are lower. There are a couple of approaches you might take. One is to pay off the card with the highest interest first. On the other hand, if you have one or two cards with low balances, you might pay them off first to eliminate those bills entirely, then dedicate the money to the other cards.
- Some credit cards offer “balance transfer” options. It might be possible to transfer the balance of a higher-interest card to a lower-interest one, but first, read the fine print to make sure you are getting a better rate in the long term.
- If you have only one or two credit cards or loans, talk to the creditor. Many will work out a plan to reduce payments and/or interest rates or offer other help. This works best if you are up-to-date in your payments.
- Refinancing may be an option if you own your home and can get a lower interest rate or if you have student loans that can be rewritten favorably. Consider these steps with caution. Be careful not to get further in debt or end up incurring large fees.
- Beware of borrowing money or consolidating loans. Payday loans, check cashing companies, pawn shops, and debt consolidation companies or debt settlement companies have high interest rates and/or high fees and offer no consumer protections. Some of these options can have a negative impact on your credit rating.
Getting Help from Professionals
- Some college campuses, church groups, banks, and credit unions have financial counselors who may help you sort out your debt problems.
- If you are overwhelmed or already falling behind in payments, you may benefit from credit counseling. A credit counselor can help you make a spending plan, guide you to helpful resources, or even set up a payment plan with your creditors. If bankruptcy is a solution, a credit counselor will help you pursue that option. If you want to work with a credit counselor, make certain it is a not-for-profit group and is accredited by a nationally recognized organization, has a license to work in your state, has a positive rating with the Better Business Bureau, and charges minimal or no fees. To get immediate credit counseling assistance, check out incharge.org.
By Vicki Whitelaw