The average American family owes just under $15,000 in credit card debt, not including mortgage, food and other living expenses. Nearly 14 million people are currently unemployed -- not exactly an economy conducive to paying off that debt. There's reputable help. Talk to family and friends. If they can't help, federal credit counseling agencies and bankruptcy are viable choices. Go outside the box to high annual percentage rate payday loan and finance companies and you jeopardize your financial goals.
Credit Counseling
Federal consumer credit counseling services cost you very little to set up payment accounts. Many times the fees are waived. You fill in the form listing your debt, the interest rates and the current payment amount. You decide how much you can comfortably pay each month. The credit counselor becomes your intermediary with your creditors, and most will cease calling you over time. One caveat: pay on time, every time, your total amount due. The counselor distributes the payments and you must keep your agreement.
Financial Institutions
No one wants to borrow money to pay off money. It just doesn't make sense unless the interest rates justify the payoff or you consolidate your debts into one payment. Borrowing is tough because most banks have tightened credit requirements. If you can't borrow from a reputable bank or credit union, stay away from finance companies and payday loans. Although finance charges are usually capped, annual percentage rates can be astronomical -- as high as 391 percent.
Family and Friends
Borrowing from family and friends is risky to those relationships, especially when borrowing to pay a larger debt. Notarize a payment schedule that you both can live with to keep unwanted emotion at bay and the record of payments straight. Go into the transaction with the mindset that you will pay on time, every time. Get a receipt and a copy of the payment balance with each payment.
Me, Myself and I
You are your greatest advocate in getting those debts paid off. First, don't make unmanageable debt. But if you do find yourself under the gun, gather your bills and make a list of your assets and your liabilities. There are two schools of thought: pay them off smallest to largest or use the "snowball" method of paying the minimums until one debt is paid off. Use that money from the paid bill to apply on your next larger bill until it is paid off, and so on.
Negotiating Settlements
If your debt has been charged off and has been sent off to a third-party collector, you can always attempt to negotiate a settlement. Debts that have been bounced around from collection agency to collection agency over the course of months or years are especially suited for settlement, as the original creditor has already charged it off and sold the debt elsewhere for pennies on the dollar. The third-party collector is happy to recoup what it can. Don't forget to check if your debt has exceeded the statute of limitations in your state. Legally, you may not owe it.
Bankruptcy: The Last Resort?
Traditionally, bankruptcy has been the last-ditch effort to release or pay off debt. Credit scores take a beating, and a bankruptcy stays on your report 10 years, although credit card companies consider you fair game to offer you credit. The public stigma has long since faded. Straight bankruptcy, or Chapter 7, releases you from most or all of your debt obligations. Chapter 13 allows you to reorganize your debt into manageable payments that you make through a court-appointed trustee. You also must undergo credit counseling, called "pre-bankruptcy" counseling.
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