If you're looking to get rid of your credit card debt the first step is to stop charging those credit cards NOW! There are several factors that weigh into figuring how you're going to tackle your credit card debt, 1) income, 2) amount of debt. If you weigh in those factors then you will know if you're going to be a better candidate for credit counseling or bankruptcy and which of those options are going to work out best for you. Hopefully this article will help you with these options and you will be able to make better decisions.
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Before you consider a self debt plan, bankruptcy or credit counseling you are going to need to answer the following three questions before you can make a decision:
What's your net income every month? What are your expenses every month? What is the size of your debt, and what are your (five year ) financial goals?
Once you answer these questions you're going to have a snapshot of your financial situation. Once you evaluate your expenses you can determine where all you money is going and really find out where you need to make your sacrifices. For example if you're spending $25 a day on Starbucks and lunch, if you're under a mountain of debt, you may want invest in some Tupperware and food you can pre-make at home.
Taking care of the debt yourself
If you're lucky enough and your debt isn't completely out of control you may optto take care of the debt yourself.
You're going to have to do a few basic first steps in order to get your financial house in order. First off, you're going to have to analyze your expenses and find out where you can trim fat by analyzing your spending habits. By doing this you can set aside a savings and maximize your income.
The next step is negotiating with your creditors, and communicating with each account to make sure you start with the credit cards with the higher interest rates. There are two things that you want to strongly communicate with your creditors, 1) that you are completely committed to paying of your debt and 2) you want to negotiate a lower interest rate. Most creditors will not have a problem with lowering your debt if you are current with you payments and have good payment history with the creditor. Although, there are no guarantees that your creditor is going to lower you payment it never hurts to try, some creditors are going to be more accommodating than others, but despite their cooperation don't stop at "No!", always try and take it to the next level if a creditor says they will not lower your interest rate and agree to your terms. Always ask for that person's supervisor if they won't oblige to your terms, or debt management plan and make sure you keep records of every person you talk to.
Seeking Credit Counseling
The main benefit of finding a reputable credit counseling organization is the quality of education that you will receive. Once you give a credit counselor a buzz the first step is similar to if you were taking care of the debt yourself, the credit counselor will closely evaluate your spending habits, income and expenses. Based on the three factors of income, size of debt and expenses they will recommend one of three things: 1) take care of the debt yourself, 2) a debt management plan, or 3) a referral to a bankruptcy attorney.
A debt management plan is basically a one to five year plan that will be scheduled to pay off your debt. The credit counselors are skilled at the art of negotiating with your creditors; they will fight for you and try to lower your interest rates and get better terms for your account. Creditors often are willing to cooperate with you if you are in enrolled in a debt management plan with experienced credit counselors due to the fact that a debt management plan is very structured and the terms are laid out very plainly.
There are some nightmare stories of credit counseling getting people in a messy situation where the consumer ends up worse than when they started. It's important you practice due diligence and make sure you choose a reputable credit counselor. Here are a few things you should look out for when choosing a credit counselor:
Choose a credit counselor that will provide references Choose a non-profit credit counselor Choose a credit counselor that has been around for quite some time, and has a favorable rating with the BBB Make sure that the credit counselor discloses all fees or costs related to their debt management plan
When should you file bankruptcy?
Bankruptcy should be your last resort, and you want to explore all other options before you take the plunge into a chapter 7 or Chapter 13. Bankruptcy is serious business, and a Chapter 7 personal bankruptcy can last on your credit report for ten years and can affect your job prospects, your ability to obtain credit, and could possibly limit where you can live.
Personally filing bankruptcy can feel like a failure but if it's your only option don't fret. There are many successful people that have filed bankruptcy and have been able to bounce back. If you are considering filing bankruptcy, it's actually a requirement that you seek out credit counseling 180 days prior to filing for bankruptcy so it's highly advisable that you seek out credit counseling before you file bankruptcy because you may be blind to your options available to you.
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