If you are currently in excess debt, there
are four ways to control it:
- If your credit is not in terrible
shape, you can reduce your other expenses, even if it means
making hard choices or changing your lifestyle to fit your
income. Consider selling a second car, taking equity out of
your home, applying for a non secured signature loan,
obtaining a loan from a relative, selling your home and paying
off your debts with the proceeds and then renting, cashing out
your 401K/retirement benefits or selling family heirlooms,
jewelry, etc.
- If your credit is already damaged or
one of the above isn't an option, go through Consumer Credit
Counseling Services (CCCS). Check your yellow pages for the
local number. CCCS may be able to help you pay off your debts
as if you were in a Chapter 13 bankruptcy, but you don't
actually file for bankruptcy.
- If CCCS won't take you, you may want
to consider bankruptcy. Claiming Chapter 13 bankruptcy takes
longer than a Chapter 7, but your credit will end up in a
little better standing. Chapter 13 bankruptcy gives you up to
5 years to pay off your debts. The disadvantage is that you're
in bankruptcy for up to 5 years plus your credit report shows
your bankruptcy for 7 more years after you have finished
paying off your debts.
- If you are so far in debt that you
can never repay it, then the best solution may be a Chapter 7
bankruptcy. A Chapter 7 bankruptcy is the least desirable from
a credit standpoint, but you are typically out of bankruptcy
in 6 months and you don't have to repay any debt. The
disadvantage is that this shows on your credit report for 10
years from the date of filing your bankruptcy. Creditors are
starting to tighten their credit requirements, and you may
have a tough time getting future financing.
If your debts are under control now,
but want to improve your bad credit history, the most important
factor is to make your monthly payments on time. Use
pre-addressed envelopes enclosed with your statements to mail
your payments and call the company if you don't receive your
usual statement. Also send your payment as early as possible if
you carry a balance. Most companies calculate interest on a
daily basis, so the sooner they receive your payment, the less
interest you'll pay.
Don't procrastinate. It's the day your
payment is received that counts, not the postmark date. Give the
post office sufficient time (five business days is a good
guideline) to deliver your mail. Late payments may mean late
fees, higher interest, and/or a negative mark on your credit
report.
Never send cash. Open a checking
account if you don't have one, or spring for a money order and
keep your receipt. Finally do not forget to tell your creditors
your new address when you move.
If you are worried about making
payments, make a list of your debts and when the payments are
due. Contact your lenders immediately if you think you will have
trouble meeting the monthly payments to arrange a payment
schedule.
Taking money from your retirement
account or tapping the cash value of your life insurance policy
to pay bills or living expenses may have serious implications
you haven't considered, so try to get advice from an expert
before you take any major financial actions.
Credit cards can be invaluable in a
crisis, since they allow you to charge items and pay them off
over time. But they can also be dangerous if you aren't careful
and charge more than you can afford. If you do use credit cards,
choose those with the lowest interest rates and pay them back as
soon as you can to cut your costs.