You have always tried to manage your money well and pay your debts on time, but one of your worst fears just came true. There was a serious illness or a job loss in your family, and you simply do not have enough money to cover your expenses. The temptation is to hide in the corner licking our wounds, but deep down we know this will only make things worse. This is business, not personal, and now is the time to stand strong and take charge.
Rearrange
If your credit rating is still good, take advantage of low or no-interest promotional credit offers. Most allow a no-fee balance transfer. You may be able to consolidate multiple accounts into one and free yourself of interest for a few months. Warning: Cash advances and check access are not the same as balance transfers. They typically come with hefty fees and high interest rates.
Look Within
Clean out your garage, basement or storage unit. Many find they have thousands of dollars worth of unused sellable items. Sell one of your cars and begin carpooling or busing. Rethink your expenses and redefine needs versus wants. Borrow from yourself. Perhaps you have a life insurance policy or even an IRA that allows borrowing. Use that money to pay creditors and begin making loan payments to yourself.
Propose Solutions
Call your credit company and propose a solution. Explain your circumstances and ask a modification to your account that will allow you to continue making timely payments. Perhaps you need a reduced interest rate, a forgiveness of fees or a lowered minimum payment.
Ask for Help
If your creditors are not cooperative, seek assistance from a reputable non-profit credit counseling service. They have tremendous bargaining power with creditors and can negotiate on your behalf. Your credit rating will take a hit, but it will not last as long as a bankruptcy.
Tap Home Equity
If you own a home this may be the time to think about a home equity loan or line of credit. The risk is that you could lose your home if you are unable to keep up the payments. These loans and lines are not to be entered into lightly, but they are worth considering if they prevent your credit rating from falling into a downward spiral.
Bankruptcy
As a last resort, contact an attorney and explore bankruptcy options. The initial consultation is typically free.
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