First a little story that you may or not be able to relate to: an acquaintance of my wife and I always had the reputation of being rich. He never worked. I mean never. I’d be toiling away in the salt mines trying to save and support my family and this guy would be off reading a newspaper. I always figured, “More power to you.” This went on for over 20 years. Then one day the proverbial sh*t hit the fan: turns out that for all those years this guy was leveraging his property with various banks for several lines of credit. He’d take money from one bank and pay off a bit of his debt at another. Like I said this went for decades — he’d just rotate from bank to bank — until finally the banks (they were European banks) wanted their money back. This guy wound up selling most of his property to pay off his loans and he has a long way to go. This guy is now in his late 60s and in Italy, your debt gets passed on to your kids — so obviously his two children are less then thrilled with what is waiting for them.
Um…sorry if there’s no happy ending to this tale. The point here — if there is one — is that lot’s of people do what this guy did (in one form or another) and wake up one morning facing incredible debt and not a lot of options to get out.
What would you say if I told you that the average minimum monthly credit card payment is a whopping $568.00 (Kiplinger’s Personal Finance Oct 2006)? Are you chuckling because you pay more? We’re not talking about a mortgage here; folks were talking about monthly credit card balances.
Carrying a credit-card balance from month to month is one thing. But you know you’re in over your head when you have trouble making even the minimum payment on your credit card or cards.
A lot of times the solution isn’t any more complicated then working out better terms with creditors or consolidating your debt with a home equity loan. The important thing say experts is to recognize a problem exists and then set out to do something about it. Here’s a brief lowdown:
– Consolidating your debt: Consolidation with a home-equity loan or line of credit can probably get you a better interest rate – but the down side is that your house is on the line. According to xxx recent rates have averaged about 7% for a line-of-credit and 8% for a home-equity loan. If you’re up for the risk then make sure you pay off your debt and not run up any more bills.
– Switch your balance: One thing that may help you is switching the balance of you credit card to one with a lower introductory rate or 0%. I only condone this if you plan on switching to a new card and sticking with it while you pay off your balance. If you jump from card to card that can become questionable and lenders may ask you about it in the future.
– Consult a counselor: first of all understand that a counselor works with lenders to lower your interest rate or work out better terms. You make a single payment to the agency which in turn pays your creditors. To choose a reputable counselor the National Foundation for Credit counseling (www.nfcc.org) or for a list of agencies in your area, contact the Association of Independent Consumer credit Counseling Agencies (www.aicca.org). Another good resource is the US Trustees Office of the bankruptcy court (www.usdoj.gov).
Experts recommend you should ask each agency how they will work to resolve your debt situation. And any reputable agency should be able to set you up with a budget in one session for under $30.00.
Another important issue is that if a credit counselor helps you set up a budget that shouldn’t be included in your credit report. If the agency is negotiating with lenders to eliminate debt and lower you interest rate that could appear on your report but it shouldn’t factor in to your credit score.
The best way to get out of debt is obviously to not get into debt in the first place. Getting out of debt takes time, sacrifice and a lot of hard work. Certainly it’s going to be more difficult to get out of debt than it was getting in to it. Better to swallow your pride and start asking for help at the first sign of trouble.