Your 2011 Debt Crisis Guide

If you're deep in debt and you've run out of options, use this guide as part of your plan of attack

Develop a game plan. Look at your statements, which show how much you need to contribute monthly to pay off the bill in three years or less. Use this payment schedule as a guide and pay the amount needed above the minimum on each card in order to reach or accelerate that goal. Apply any extra money toward the card with the highest interest rate. Once you’ve paid it off, apply that payment amount toward the card with the next highest interest rate, and continue until all the cards are paid. “Can you pay what’s required to get rid of the bill in three years for each of them? If not, get help,” says Gerri Detweiler, personal finance expert at

Contact your creditors if you’re in trouble. Once you realize you will have difficulty paying, tell your creditors. “Some creditors—for example, Bank of America—are coming up with hardship programs that reduce interest to as low as 0% for a period of time,” says Detweiler. You can ask any major credit card company if it has such a program, although you may need to meet certain eligibility criteria. Let them know what you can pay monthly and see what can be worked out.

Whatever you do, don’t skip payments.
Skipping payments or paying 30 days after the due date can lower your credit score by 30 to 50 points.

Contact a nonprofit credit counseling agency. Start with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. A credit counselor will review your debt and budget, and assess what you can afford to pay back. You may be advised about enrolling in a debt management plan. Generally, the goal of these programs is to have you debt free in five years or less. You make payments to the agency and it pays your creditors. The fee is usually $50 or less to set up the program and then you’re charged about $25 monthly. In a case of financial hardship, fees may be waived.

Don’t raid your retirement fund. “Generally, your retirement money is not touched by creditors if you’re in a crisis,” says Detweiler. Debt settlement should be your last option, she adds. Recent changes in the law require for-profit debt settlement

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