Getting Out of Credit Card Trouble

What if it happens? Despite all your best efforts, you sit down with your bills one month and realize that your credit card debt has passed the threshold. It’s out of control – you can’t even pay the minimum balance on all your cards anymore. It’s tempting to skip that payment and make it up next month – something will come up, you’re sure of it. Before you bury your head in the sand and yourself deeper in debt, there are some steps you should take that can stop the slide toward credit court and bankruptcy.

1. Take control of your spending.
   Don’t wait till you hit your limit on all your accounts and your credit privileges are suspended. Put the credit cards away NOW. If you’re already at the point where you can’t make your minimum payments, the last thing you need to do is pile on more debt. DON’T cancel or close the accounts – in most cases, that will bring your entire balance due immediately.
2. Work out a monthly budget.
   It’s the dreaded B word. Most people hate the thought, but the only way that you’ll know what you can afford to spend is to map it out. A budget isn’t a prison, it’s a blueprint. Sit down and add up all your sources of income. One by one, subtract your monthly expenses, starting with the fixed ones – rent, utilities, car payment, insurance payments, health insurance – everything BUT your credit card bills. What’s left is the amount that you can put toward your credit debt each month.
3. Contact the credit card companies.
   This is where most people make their first mistake. Frankly, the credit card company WANTS to work with you. It costs them far less to work directly with you to come up with a repayment plan than it does for them to pursue the debt through a third-party collection agent. Explain your situation, and attempt to work out a payment plan that you can live with. DO NOT agree to terms that you can’t afford.
4. Even if you were unable to reach an agreement with the credit card company, SEND THE AMOUNT THAT YOU CAN AFFORD.
   This is the second mistake most people make. If you can’t afford the minimum payment due, your worst course of action is to make no payment at all. A good faith effort will always look better on your credit record than a complete default.
5. Contact an independent, non-profit debt reduction agency.
   A non-profit debt reduction agency will help you go over your budget, and cut out any fat. They can suggest strategies to use with credit card companies, and in many cases will actually negotiate with credit card companies on your behalf for lower monthly payments or a reduction in the overall bill. Often, the fact that you are working with a debt reduction agency will signal to the credit card company that you are serious about repaying your debt, and they’ll be willing to stretch their terms a little more to accommodate your ability to repay.
6. If your current situation is a temporary one brought on by an unforeseen circumstance – an accident, injury or illness, for instance – and your late payments are reported to a credit reporting agency, it is in your best interest to write to those agencies with an explanation of the situation.
   By making a note on your credit report, you explain the situation to future lenders who may be considering extending a loan to you. By making sure that the extenuating circumstances are on record, you make their decision easier – especially if you’ve since fixed the problem and have your credit back on track.