Debt Consolidation Answers by a Debt Expert

Having this kind of debt at your age must be very stressful for you. I can understand that you are considering bankruptcy. However, I want to urge you to explore other options before you jump to this drastic decision. Be sure to call every one of the creditors and try to work out a negotiated new payment plan with lower interest. Do you have anything of value you can sell and apply the funds toward the debt with the highest interest rate? Do you have time and energy to do overtime or other work - bartending on weekends - tutoring - helping people on their computers - consulting - on the side?

My concern is that you are very young and you will be carrying the bankruptcy on your record from age 24 to 34. This record can have a huge impact when applying for jobs, loans, credit, apartment etc. I know there are many ads from companies saying they can clear up your bankruptcy record. I have yet to find a legitimate way that this record can be erased early and permanently.

My other concern is seeing this as an "easy" out or "only option", and therefore, not developing your ability to be creative and resourceful for solving problems. Without learning new spending skills, patterns, habits and attitudes, people can end up repeating the same problems and landing in another bankruptcy later on.

Your information does not include how your debt ended up at $60,000, nor what percent of this debt is credit card debt and what percent is loan. I'm wondering if some of the debt is for a student loan. Be aware that not all debt is discharged with a bankruptcy.

I know you feel like you are getting no where with your payments with the $900 a month, yet, you really are doing very well considering your income. If you were to keep plugging away consistently at that rate, manage your spending diligently and factor in some salary raises and possible sale of stuff through places like EBay in the next 5 years, it is very likely you could be totally out of debt by your 29th birthday! It may feel like an eternity, but in the big scheme, it is a small blip of time.

You would also be establishing a strong credit history as you stay on top of all your expenses and consistently make your timely debt payments. What is even more significant, is that you now have an opportunity to learn a very important lesson about effective money management skills and have time to do a major course correction in your life for a successful financial future.

Please visit my website www.moneytracker.com and sign up for my free newsletter and e-course to help you gain more money management skills. Also consider using The Budget Kit workbook to help you establish an effective spending plan - also available on www.moneytracker.com.

The fact that your landlord and roommate were willing to help you out and work with you, seems to say a lot about you as a person.

First, talk to both parties and explain your sincere desire to pay them off, but that you will need to do so in an installment arrangement. You might also ask if there is anything you could do as some kind of a partial trade for part of the past due amount or for part of the current rent. Depending on your skills, time and the nature of the rental unit, can you paint, do repairs, yard work, computer, graphics, marketing or any other kind of service that would be valuable for the landlord or roommate?

Even though you now make only enough to survive, are you sure? Have you created a realistic budget? Is there any room to find extra money by eliminating or reducing some services or products for a few months (ie cable, cell phone, DSL, car washes, coffees, snacks, books, CDs, Electronics, meals out, smoking, drinks etc.)? Do you have any upcoming tax refunds or reimbursements, bonuses you could use? How about any items to sell through EBay, yard sales or the resale shops for CDs, computer games etc. to raise some cash?

If you were to come up with an extra $150 a month and both your roommate and landlord agree to not charge interest, you could have your debt paid off in 20 months - less than 2 years. Is that something you could do? Remember someone who is receiving money for a past debt in small installments and without interest is still getting more money than a bad debt never paid.

Resource
One way to find the spending leaks is to track your spending.
At www.moneytracker.com you can find my workbook available in 3 versions (print, E-book and Excel) which will help you track your spending. The worksheets will also help you create a monthly spending plan so you can plan out your monthly payments to your roommate and landlord.
Be sure to pick up a copy of The Budget Kit: Common Cents Money Management Workbook 4th Edition on my website or in your local bookstore.

If only some of these financial decisions could have such simple black and white answers. Without any specific information to help determine what makes more economic sense personally for you, let me discuss the two options of bankruptcy and debt consolidation in general.

Depending on the kind of bankruptcy filed, all or a portion of your debts will be dismissed. First of all with this option, there is the ethical issue. Many people have strong feelings about avoiding bankruptcy for ethical reasons. They know they are responsibility for the debt and feel obligated to ultimately pay all their creditors in full and want to work out whatever arrangement they can to satisfy the debt.

A second issue is the impact on your credit history, and all future financial events. That being said, there are situations when bankruptcy is one of the only options left. Between job loss, accidents, devastating health conditions, environmental catastrophes, real estate losses, divorce, and other unexpected life events, there can be many times where not enough income is available to manage the volume of debt along with the basic living expenses.

Debt consolidation, on the other hand, is a way to pay off all the debt, but with a reduced overall amount of interest rate as well as a simplified payment structure of one payment. Having one low interest rate will save money. Having one payment will definitely save on the late fees, postage and personal stress of keeping up with all the different bills. If you qualifying for a debt consolidation loan, have the income to make the loan payment as well as all the living expenses, than this option makes much more sense.

These are very over simplified answers. To make either decision still depends on your personal income, debt, home ownership, credit rating and other factors.

Before you decide on the bankruptcy or debt consolidation option, be sure you have exhausted all your basic options.
. Contact your creditors yourself to negotiate some arrangements.
. Create a realistic budget that outlines a system for methodically paying down all your debt and dramatically cut back on your discretionary spending. (Utilize my workbook The Budget Kit: Common Cents Money Management Workbook visit www.moneytracker.com)
. Explore a line of credit with your home equity.
. Find ways to generate more money - work more hours, take on a second job, sell items at yard sales, on EBay, and other resale outlets to pay off the debt.

First of all give yourself a big pat on the back for some incredible accomplishments: you paid off your debt, paid more than the minimum and always paid on time. All three of these actions are paramount to improving and maintaining excellent credit. Well done!

It sounds like your real goals are to have a low interest rate, great credit history and an excellent credit limit. Based on those goals I am making the following suggestions:

1. Call your credit card company and explain that even though you would prefer to stay with them, you are receiving many card offers with incredibly low interest rates (which I'm sure you are). You are wondering if they have a promotional rate they can offer you. If the person on the phone seems inflexible or not authorized to make the decision, ask for their supervisor or manager and then negotiate with that person for a lower rate.
2. If you now have the card paid off, I would like to think you plan to pay off your card in full each month from now on. If that's the case, the high interest rate may now be a moot point.
3. Assuming you are receiving other card offers and just want a low rate card on hand for those rare times you may need to charge something and then budget for a few monthly payments, carefully review the card offers and read all the small print. If you know you are now able to carefully and responsibly manage your cash flow and spending habits, than apply for that second card with the lower rate and no annual fee. Then if your current credit card interest rate is not lowered, you have a backup system in place. It is also very possible you could receive a good credit limit with the new card offer and not need a year to build that up.
4. While reviewing different credit cards, if you belong to a Credit Union or professional organization, ask about their credit card rates and limits as well.

At www.moneytracker.com you can find my workbook available in 3 versions (print, E-book and Excel) which will help you manage and record future credit card charges and payments. Be sure to pick up a copy of The Budget Kit: Common Cents Money Management Workbook 4th Edition on my website or in your local bookstore.

I'm glad you are asking the questions and trying to get a handle on this. Without a little more explanation, I am not sure if fixing the credit report means basically paying off the debt or it means correcting a number of issues on the credit report that are damaging your credit.

There are a number of unknowns in this question, so I will start with a number of questions for you (since it is important to know these specifics) and keep this answer a bit more generic.
*How much debt do you currently have?
*Are you able to make all the payments - and on time?
*What interest rate are you paying and have you renegotiated these *rates down already?
*Is there enough income to cover all the payments plus your living expenses?
*Do you know how much your monthly living expenses actually are?
*Have you changed your spending style?
*Will the debt consolidation really improve the situation or will it give a false sense of solving the problem and then seem to make room for more spending?
*Will the debt consolidation company actually create more monthly expense with their fees?
*How much have you researched about this company? See my previous answers to other consumers for a list of questions to ask.

As far as being debt free in 24 months, depending on the amount due and what the company is able to negotiate, that arrangement could be very possible. I don't know how much debt you are dealing with. Having the debt paid off in two years sounds like you either have a manageable amount of debt, or your income allows you to make significant payments. If this is the case, can you negotiate lower interest rates and do the payments your self without the debt consolidation company? I do know that many of the reputable Debt Repayment Programs are able to successfully help people clear up their debt in 3 - 5 years. Much, of course, depends on how consistent and disciplined you are with those payments every month and with your overall spending and budget plan guiding you through the month.

Will your credit be ruined forever if you work with a debt consolidation company? This action alone will not ruin your credit - and especially not forever. What will negatively affect the credit report is your actual credit history.

One issue I feel is most important is being more familiar with the Credit Report and Score process. Below are a few points of information. At the end, I have also listed some resources for ordering your own credit report. This way you can be sure all the information is accurate so there are not any "repairs" to make. The biggest repair (and maybe only one) may be paying off the debt as quickly and consistently as you can:

=>35% of your score is based on Payment History (Are payments on time, late, missed?)
=>30% of your score is based on the total amount you owe (if more than 50 % of available credit limits are used on credit cards, the credit score will suffer)
=>Shuffling debt around could negatively affect the score especially if it shows a high number of open revolving accounts
=>Credit Reports are always a snapshot of the moment and can change often.
=>The worst offenders for affecting the Credit Score are the following 4:
1. Delinquent debt debts sent to collection agencies or just not paid
2. Slow payments on existing debt even one day late can make a huge difference.
Be sure to get your checks in early!
3. All the debt is on credit cards (not car loans, student loans, medical or legal bills)
4. Maxed out or close to it on all the credit lines available.

Be patient, persistent and disciplined as you embark on the next two year journey of becoming debt free.
Know that you really can do this.

RESOURCES:
Order your own credit report and see exactly what it says. When you order the report yourself, your credit score is NOT affected. The cost can vary, but for your peace of mind, and knowledge it would be worth it. Also, by ordering on line, you could get instant information. For more information and to order your own credit report contact:
www.myfico.com
www.truecredit.com

Credit Reports can be very complex so it helps to get as much information as you can.
For more information about improving your credit scores visit:
www.icfe.info

If you need any help creating a realistic and effective budget, and getting a better handle on your living expenses and spending style, my Budget Kit: Common Cents Money Management Workbook 4th Edition (Dearborn Trade, 2004) is a great tool that has helped thousands get out of debt for over two decades! The workbook has worksheets (in the paperback book or in Excel spreadsheet) for creating a debt payoff program plus numerous other budgeting tools. There is also a Debt Repayment Worksheet section for guiding you through a Fair Share Debt Repayment Program. This was developed for people who choose not to use the services of a consumer credit counseling program or go through bankruptcy. For more information go to www.moneytracker.com

I'm sure you are feeling a great deal of stress every day. Getting some reputable help would certainly give you some relief. I have some suggestions and information regarding the credit counseling services.

However, I do want to acknowledge that your question actually contains a number of issues that would be important to address, but there is not room here to do so. I would recommend you read through some of my previous answers to get additional help. Be sure you have a very effective budget in place to best utilize the $30,000 income you have. There is no room for unplanned spending. If you choose not to go through bankruptcy and want to negotiate to arrange small consistent payments, there are resources to guide you. I've included some at the end.

Now about the debt consolidation help question. You were concerned about stories of large added monthly fees to the payments. You are wise to worry. This is one of your primary questions to ask. Below are a number of questions to ask before working with any organization. At the end, I have also made some recommendations for where to get help.

Some questions to ask and research to do include:

=>How long have they been in business? Look for a company that has a history of at least 10 years and been through some of the various economic cycles. There are so many companies that have jumped on the band wagon during these last 5 years, it is hard to know who is legitimate.

=>Have any complaints been filed with the local Better Business Bureau (BBB)or State Attorney General's office? Are they even registered with the BBB?

=>How to they actually "clear up" this credit? How long will this "cleared credit" last? There are "techniques" out there for temporarily "clearing" a credit history, but once the system catches up with the process, the credit history could be back on the record.

=>Are employees paid by commission, if you sign up? Do you detect a hard sell? Someone may sound like they are reading from a script. What percent of your fees are going to this commission? Is this where you want your hard earned, limited available funds to be going?

What you can do yourself:

Ask around with people you know and trust. Often
professionals you know in the financial industry -
mortgage brokers, realtors, financial advisors, planners or counselors, bankers, insurance agents, and accountants often have reputable resources. They will do their own due diligence before recommending anyone.

Contact your local Consumer Credit Counseling Service
(CCCS). They are still the best place to start to get help working with the creditors. Be sure they are a member of National Foundation for Credit Counseling (NFCC) http://www.nfcc.org/ or Association of Independent Consumer Credit Counseling Agencies (AICCCA) http://www.aiccca.org. Both have established professional and training standards all members must meet. Even so, when you call, ask them the above questions.

And finally, do all the obvious steps yourself: contact the creditors to negotiate payment arrangements, pay down your debt, stop spending, find ways to cut costs in all areas and explore ways to make extra cash.

If you need any help creating a realistic and effective budget, my Budget Kit:: Common Cents Money Management Workbook (Dearborn Trade, 2004) has worksheets (paperback or in Excel) for creating a debt payoff program and numerous other budgeting tools. There is also a Debt Repayment Worksheet section for guiding you through a Fair Share Debt Repayment Program. This was developed for people who choose not to use the services of a consumer credit counseling program or go through bankruptcy. For more information go to www.moneytracker.com

RESOURCES:
Nonprofit resource for financial information and personal finance education
http://www.financial-education-icfe.org/

The following books also address the Fair Share Debt Repayment Program approach:
How to Get Out of Debt, Stay Out of Debt and Live Prosperously by Jerrold Mundis

The Financial Peace Planner by Dave Ramsey

Let me address the first of your two issues (how to handle the debt situation and the possibility of being sued and taken to court).

It sounds like you were in touch with the collection agency a number of times, which is to your credit. The fact that they were willing to negotiate is another good sign. Without knowing more of the details or your payment history after your agreement with the agency, it's hard to know why your payment schedule was being changed or why you were not receiving paperwork.

Your description about the debt, collection and paperwork situation brings up some important points for future situations.
1) Be sure to document and make notes of all phone and mail contacts. List the dates, phone number, people you spoke to, what they said and agreed to. If there is any paperwork, keep all of this in one folder or ring-binder together.
2) Keep very detailed records and copies of all payment checks sent to the collection agencies as well as the paperwork that shows the agreement and starting balance. Be sure that payments are paid on a consistent basis and you have proof of each of these payments, like your bank statements and copies of the checks. If you are not receiving monthly statements showing your payment and balance due, you at least have your own running balance you could show when communicating with the agency. The difference, of course, would be the amount for the finance charge.
3) Have a clear budget set up based on your current job and financial situation. When you are negotiating, be sure this budget is in front of you so you can make realistic promises for payments, as well as strong explanations of why you can not make larger payments. When you say you are living from paycheck to paycheck, your budget on paper would confirm this information. See my previous answers for suggestions on setting up a budget. Also, be sure to use my book "The Budget Kit: Common Cent Money Management Workbook 4th Edition" if you want to create a realistic and effective budget. More information is available at http://www.moneytracker.com

I'm also hearing that you do want to pay off these debts. One option is to use the help of a non-profit debt management service. Contact a member agency of the National Foundation for Credit Counseling (NFCC)www.nfcc.org; 800-388-2227 for more information.

The other is to work out a very clear and systematic program for gradually paying off this debt. Again, in the "Budget Kit workbook" there is a whole section with worksheets and instructions devoted to helping readers pay off debt. Even if you can't pay the amount requested, there are still ways to pay off this debt.

Now for the legal part of your question.

Since you actually do owe the money, the credit card company has the legal right to receive and go after the money owed to them. For more information, I would contact your local legal aid or attorney. If you are a member of a prepaid legal program, this would be the time to utilize their services. You could also contact the NFCC (see above) and ask if they have any suggestions.

Hang in there and keep doing the best you can.

Dear Don,

You bring up a very good question that I'm sure many often wonder. Since you actually do owe them the money, the credit card company has the legal right to receive and go after the money owed to them. One possible way to avoid being sued is to participate in a non-profit debt management program. Once you are working with them, they become a type of intermediary. However, even this option depends on the status you are currently in with the credit card company.

Have you already negotiated with them? Have you already worked out a hardship program with them? If these options have already been exhausted, and you are not making your payments, it may be more challenging to even receive the services of a non-profit program. The agencies role is to go to the creditors and work out a program on your behalf based on a budget they help you establish and what you are able to afford. The credit card company can still chose to not work with them.

Once you go to court and get a judgment these agencies cannot work with you at all. All is in the hands of the court.

Without knowing any more about your situation, my recommendation would be to work out the best program you can for paying off your debt and preventing this situation in the future.

For more information, I would contact your local legal aid or attorney. If you are a member of a prepaid legal program, this would be the time to utilize their services.

You can also speak to a member agency of the National Foundation for Credit Counseling (NFCC), which is the service I called for assistance on this answer. www.nfcc.org; 800-388-2227)

Dear Cathy,

Let me do my best to offer you some suggestions on this frustrating situation for your daughter in law. As she knows, this student loan, deferment and payment program is her responsibility, even though she has had some major life transitions happening during this past year.

The goal now is to somehow make contact with Sallie Mae and find out what you need to bring your payment status current - other than paying off the full amount requested.

My suggestions for your daughter in law in order of priority are the following. As you do each of these, be sure to document all conversations (who you spoke with, when, where, what they said - write all of this down).
1. Stay persistent in your attempts to reach Sallie Mae. Call at different times of the day, first thing in the morning when the offices open up, very end of the day - whenever possible. Keep calling.

2. Call the Financial Aid office at the University you attended that issued the loan(s) and ask for help from either the loan officer or the Financial Aid Director. They are in regular contact with Sally Mae and must have some different numbers to call. Ask for any suggestions and what they recommend to get this issue resolved.

3. Go to the universities in your current Lafayette area (Purdue University and others) and talk to someone in the Financial Aid office there to get a different contact phone number and any other suggestions on resolving this.

4. And finally, the Department of Education for the US has an Office of Education in your district. There is a central office for this district I believe in Chicago. Find that phone number and again ask the contact and suggestion questions.
It is imperative that you persist on this situation and making contact to resolve this situation. Do not let this go any longer.

I hope that helps. Best of luck to you.

Dear Katie,

Good for you for recognizing the need to make changes in your life right now! You certainly can do it.

Often I tell people who are in their early 20s and in debt, this experience can sometimes be a gift. Once you experience the impact of debt on your financial, emotional, and physical being on such a deep level, it's usually an experience you never want to have again. It's a little like burning your hand on a hot stove when you were little. Once is enough to get it. This means you are now motivated and ready to receive the tools and services that exist to help you, and will use them! Also, you have the total advantage of your age to fully recover financially, get ahead financially and gain the right tools early on that will keep you from dealing with this kind of debt in your 40's.

So what to do -

Your first step is to be sure our spending is completely under control and well planned out. Gather the facts so you can get an exact handle on your financial picture Start by listing all of your monthly net income, all of your fixed bills, your regular monthly spending (besides the bills) plus the minimum payments on all your credit cards. Subtract all the bills, expenses and credit card payments from the net income and see how much is short. Now you have more realistic information and a starting point.

Review the list and see what adjustments you can make to each item so there is no longer a shortage on paper. What expenses can you eliminate, postpone, or adjust? Keep finding ways to cut back on the spending, yet creatively have your household, personal and emotional needs met so you are not staying in a mindset of deprivation. Look at various ways to bring in more cash. What extra cash can you find to direct toward the debt?

Then thoroughly review your debt. List all of your debts - the total balance due, interest rate, minimum payments due, term (how many months/years to pay). Contact the creditors and negotiate some arrangements with them - lowered interest rates, removed fees, lower payments.. Based on the information you gathered above, when negotiating, you should be able to discuss how much you can honestly afford to pay on a regular monthly basis and then stick to that plan.

And by all means, don't try to do this alone. Find the right tools, people and services to successfully guide and support you through this process and help you stay patient, motivated and persistent.

Resources include books in the "Business/ Personal Finance" section in the bookstore or library, classes or workshops through local community colleges, extension services and often financial services companies. Many cities have Debtor Anonymous programs which provide great emotional support. Go to www.debtorsanonymous.com. There is no shortage of websites with information, but one that I would recommend for very good articles is www.bankrate.com.

If you need any help creating a realistic and effective budget, my Budget Kit:: Common Cents Money Management Workbook (Dearborn Trade, 2004) workbook has all the forms already created (in paperback form or Excel) to help set up and maintain a very effective budget. There are monthly worksheets to outline the budget and to keep track of the spending. There are also worksheets for creating a debt payoff program and numerous other budgeting situations. For more information go to http://www.moneytracker.com where you can sign up for my free e-course and free newsletter.

Without knowing a number of particulars, I'm going to make some general suggestions.

It sounds like you may have an arrangement of a no interest payment for ten years. If that's the case and works for all parties involved, and you know you can keep up the monthly $1000 payment, then that sounds like a very viable option.

Do you own a home? Research home equity loans and leverage the equity in your home for the payments or payoff.

If you can consolidate all your debts, and can qualify for a lower interest loan with your credit union, bank or other reputable service, for a single and smaller monthly fee, that would certainly work.

I'm wondering if this debt comes mostly from hospital expenses. If so, contact the accounting departments, explain your situation, negotiate a reduced bill and reasonable payments.

Whatever arrangement you end up with, be sure to have a solid budget plan in place so you know you can afford these payments. Most importantly, be sure you stick to those payments religiously for the entire time.

If you need any help creating a realistic and effective budget, my Budget Kit:: Common Cents Money Management Workbook (Dearborn Trade, 2004) has worksheets (paperback or in Excel) for creating a debt payoff program and numerous other budgeting situations.

Your question is an excellent one, as it reflects the dilemma so many are going through these days with high debt issues. The amount of the fees to supposedly clear up these bad credit issues for car debt and credit card debt sound totally out of line and immediately raises a red warning flag. Without more information, I can't say if this investor is credible or not,(I have my doubts) but it does sound like this person is making a lot of money every time someone signs up with him.

Of course it is very tempting when emotionally overwhelmed with the debt issue to listen to someone who says they will be able to clear up all bad credit. Before signing up for any of these programs, it is critical to do your own research.

Some questions to ask and research to do include:

How long have they been in business? Look for a company that has a history of at least 10 years and been through some of the various economic cycles.

Have any complaints been filed with the local Better Business Bureau(BBB)or State Attorney General's office? Are they even registered with the BBB?

How to they actually "clear up" this credit? How long will this "cleared credit" last? There are "techniques" out there for temporarily "learing" a credit history, but once the system catches up with the process, the credit history is back on the record.

Are employees paid by commission, if you sign up? Do you detect a hard sell? Someone may sound like they are reading from a script. What percent of your fees are going to this commission? Is this where you want your hard earned, limited available funds to be going?

What you can do yourself:

Ask around with people you know and trust. Often professionals you know in the financial industry -
mortgage brokers, realtors, financial advisors, planners or counselors, bankers, insurance agents, and accountants often have reputable resources. They will do their own due diligence before recommending anyone.

Contact your local Consumer Credit Counseling Service (CCCS). They are still the best place to start to get help working with the creditors. Be sure they are a member of National Foundation for Credit Counseling (NFCC) http://www.nfcc.org/ or Association of Independent Consumer Credit Counseling Agencies (AICCCA) http://www.aiccca.org. Both have established professional and training standards all members must meet. Even so, when you call, ask them the above questions.

And finally, do all the obvious steps yourself: contact the creditors to negotiate payment arrangements, pay down your debt, stop spending, find ways to cut costs in all
areas and explore ways to make extra cash.

RESOURCES:
Nonprofit resource for financial information and personal finance education
http://www.financial-education-icfe.org/

Good luck with your research.

Having your hands full with twins, one income earner, limited housing space and debt can certainly be stressful and discouraging.
First, let me say that you CAN become debt free. It won't happen over night and it will involve various behavioral changes, but if you and your husband are equally motivated, I want you to be patient, yet feel encouraged.

Without knowing more information such as monthly income and expenses, the type of job your husband is in, the type of debt in the $30,000, how the house sale proceeds were used etc, I will give some general guidelines for gaining control over your money and ultimately achieving financial peace of mind.

Your first step is to be sure the spending is completely under control and well planned out. Gather the facts so you can get an exact handle on the financial picture in your household. Start by listing all of your monthly net income, all of your fixed bills, your regular monthly spending (besides the bills) plus the minimum payments on all your credit cards. Subtract all the bills, expenses and credit card payments from the net income and see how much is short. Now you have more realistic information and a starting point.

Review the list and see what adjustments you can make to each item so there is no longer a shortage on paper. What expenses can you eliminate, postpone, or adjust? Keep finding ways to cut back on the spending, yet creatively have your household, personal and emotional needs met so you are not staying in a mindset of deprivation. Look at various ways to bring in more cash. Can you do any work from home? Are there things to sell at a yard sale or online? What extra cash can you find to direct toward the debt?

Then thoroughly review your debt. List all of your debts - the total balance due, interest rate, minimum payments due, term (how many months/years to pay). Contact the creditors and negotiate some arrangements with them - lowered interest rates, removed fees, lower payments.. Based on the information you gathered above, when negotiating, you should be able to discuss how much you can honestly afford to pay on a regular monthly basis and then stick to that plan.

And by all means, don't try to do this alone. Find the right tools, people and services to successfully guide and support you through this process and help you stay patient, motivated and persistent.

My Budget Kit workbook has all the forms already created to help set up and maintain a very effective budget with monthly worksheets to outline the budget and to keep track of the spending. There are also worksheets to workout a debt payoff system. If you are interested in my free ecourse for getting started with a budget, you can go my website and sign up.

Remember, you and your husband are a team. Be sure to communicate and work out a plan together that will slowly but surely get you out of debt.

Good luck to you.

Your credit is not necessarily ruined. You do have several options.

Determine, based on your income and expenses, whether you can pay off the $30,000 you have in credit-card debt plus all the accruing interest within a reasonable period of time, e.g., no more than three to five years. If you can, do so and your credit will not be ruined. If you cannot, then you can select from the options below and just know that your credit will be negatively affected.

You must immediately figure out a way to stop using your credit cards and start trying to pay off that $10,000 debt, which is not a lot of debt, considering the average amount of debt most people are in. Your options may include finding a way to increase your level of income by either finding a better paying job or by getting a second job. Once your income level increases, do not increase your standard of living, which would defeat the purpose. Another option, which can work well when combined with the first option is to find ways to decrease your monthly expenses such as eating, clothing, transportation, entertainment and other living expenses. You can still enjoy life while reducing your expenses. In sum, by increasing your income level and reducing your expenses, you'll not only be able to pay off that $10,000 debt in no time, but you may also find yourself with a nice savings account.

Many financial planners suggest that you should pay off the debts with the higher interest rates first, to lessen the amount of interest charges accruing on debts with higher interest rates. For motivational purposes, I suggest you pay off your credit-card debts by starting with the accounts that have the lowest balances. Specifically, list your credit-card debts on a sheet of paper starting with the lowest debt. Give yourself a check mark beside each debt as you pay them off. Doing this will give you a sense of accomplishment sooner and encourage you to continue to pay off your other credit-card balances. One method is motivational, while the other saves you money. Whatever method you choose, the most important thing you must do is to keep your focus on paying off all your account balances and don't repeat the vicious credit-card cycle.

Most people I know can't tell you where their paychecks go each month. All they know is that they don't have enough money to make ends meet. That's like having a checking account, writing checks, and never balancing it. Don't leave the management of your money to chance like that. Instead, establish a budget and stick to it. However, before you can establish a budget, you must first know how much money you are currently spending each month. To learn this, list your total monthly income, e.g., salary, and your total monthly expenses, e.g., mortgage/rent and food. Then subtract your expenses from your income. This gives you the amount of your monthly disposable income. Whatever your disposable income, you should be saving or investing most of that amount. If you can't do so now, start off by saving 30% of your total monthly disposable income or 15% of your total monthly net income (your income after all taxes and other payroll deductions are taken out), whichever is greater. Then month by month, increase this percentage. Understand that there are monthly expenditures that you may not be able to change immediately, e.g., mortgage/rent and car note, and there are monthly expenditures that you can change relatively easily, e.g., food, clothing and utilities. Focus on the ones you can do something about right now, and implement a budget reduction plan. Keep reducing your budgeted amount until you feel you have decreased your monthly expenditures by as much as you possibly can. The bottom line is that you must establish a budget, stick to it and implement a reduction plan, so that your financial situation won't be left to chance. Having a budget and not sticking to it is just like not having one at all. If you follow your budget and implement a reduction plan by gradually decreasing the amount you are spending in all areas, you can increase the amount you are putting in your savings account.

June 5 , 2004
Credit Debt > General
Do you know what happens if I just stop paying my credit cards? I think I'm really at that point now. - Bridgette

EVANS ANSWER: Your creditors will continue to harass you and may sue you for the balance owed on the debt. If a judgment is entered against you, your creditors may be able to seize your assets to pay off the amount of the debt. So, if you are planning to stop paying on your credit- card debts, then determine if either bankruptcy or a debt reduction/elimination plan is best for you.

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