Excessive Credit Card Debt - What to Do
By Steve Gillman - 2006
There are many things you can do to resolve your excessive
credit card and other debt. The first thing though, is to stop
creating more. I have seen more than one person get out of debt
briefly, only to fall back into it again. So start changing those
habits. Of course, you have the debt, so what can you do to knock
it down? here are some ideas.
Discount Your Debt
Settle debts for a discount. When I collected debts for a
living, we regularly took 50% as payment in full, if we thought
it was the best we could do. If you really can't handle your
payments, you may be better off to borrow the money from family
to settle your debts for 20% to 60% of face value. Credit card
companies regularly take 50% or less as payment in full if they
are convinced you are headed towards bankruptcy.
Write a nice letter explaining your situation, and how you
will get the money for the pay-off. Explain that you will most
likely be filing for bankruptcy, but would like to settle up
with any willing creditors before that happens. This let's them
know they may be left with nothing if they say no, and you split
your remaining assets between other creditors.
How to Pay Debt
If you are trying to dig out of your debt, always pay high-interest
cards first. For example, if you have $200 budgeted to apply
to your cards each month, pay the minimums only on all others,
then put the rest of the money towards the card with the highest
interest rate. Once that one is paid off, work on the next highest.
This is a powerful technique that saves a lot on interest
charges. If you have three cards, for example, you would pay
the minimum of (let's assume) $40 on two of them, and apply the
other $120 to the highest interest card. Once that card is paid
off, you continue to put $40 towards one card, and now apply
$160 to whichever of the two remaining is the higher interest
credit card. This is the fastest way to pay down credit card
Don't buy the credit card insurance. This typically stops
your payments when you are injured or unemployed. It is one of
the most over-priced insurances out there, and doesn't eliminate
the debt, but just delays it.
Avoid credit card security insurance. It pays for unauthorized
charges when your card is stolen, but you are only liable for
the first $50 if you report the theft in any case, and many cards
already have 0 liability.
Avoid consolidation loans. Don't consolidate debt into a home
refinance unless you have a definite plan for paying the loan
off early. 6% isn't cheaper than 18% when it is for 30 years
instead of 5.
If you have tried some of these techniques without success,
contact a nonprofit credit-counseling service. They may be able
to help you negotiate lower rates with your banks, and otherwise
counsel you on how to reduce your credit card debt.
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