Help With a Debt Crisis

When debt has reached the point of being a crisis, it helps to have someone with expertise help you devise a plan for getting out of the crisis. Agencies such as those connected with the Association of Independent Consumer Credit Counseling Agencies and the National Federation for Credit Counseling offer free counseling services and low-cost or free assistance with debt consolidation and bill paying. Sometimes, they advise bankruptcy.

Credit Counseling

The best credit counseling agencies such as those affiliated with AICCCA and NFCC are used to dealing with people in debt crisis. They do interviews over the phone, in person or via the Internet to find out about your situation: your income, expenses, debts, spending habits and anything else that can help them help you. The counseling is free, and counselors with these agencies are accredited and charged with giving you a comprehensive picture of your financial situation and options for dealing with it. After one session, many consumers can manage their debt on their own.

Debt Management Plans

In a debt management plan, these agencies take over payment of your unsecured debt, such as credit cards. You and the agent work out a budget and a monthly amount needed to pay down debt. You give that amount, and sometimes a small administrative fee of up to $50, to the agent who pays your debts and negotiates down interest rates and fees. The agent usually requires that you cut up your credit cards and don't apply for any new ones until the debts are paid off.

Debt Consolidation

The debt management plan serves as a form of debt consolidation. Other consolidation options may be home equity loans, 401k loans or installment loans that pay off multiple credit card or other unsecured debts. All of these come with some risk, such as the risk that you will lose your job, then have to return the 401k loan immediately. Many debt consolidation companies not under AICCCA or NFCC are scams that take their cut before they start paying your bills, further damaging your credit.

Bankruptcy and Debt Settlement

In some cases, the best option may be debt settlement or bankruptcy. Credit counseling agencies, which have a lot of experience, can help you make this determination. If your debts are high but so is your income, you may want to choose debt settlement, which means paying a fraction of your debts to creditors. Often, this is done at some expense with the help of a debt settlement company, but you can do it on your own. Another choice is Chapter 7 bankruptcy, which must be handled by a lawyer. With this, all your debts are discharged. Both of these choices seriously damage your credit rating.