It happens to many of us. We've been struggling hard to manage
by ourselves, and by the time we call for help, it's too late. In
this section we talk about Survival Rules when you're over you head
in debt. We take a close look at Credit Card Balance Transfers, an option
for those who have some credit left but are not able to qualify for a bank
Debt Consolidation Loan. Plus we talk about Credit Counselling and Bankruptcy
- two options for when your credit problems seem too hard to handle.
Credit Card Balance Transfers
Every now and then you get in the mail a flyer from a credit
card company offering an attractively low interest rate if you'll
just transfer over to them the balance from your other credit cards. Read
the fine print, though, and you'll find out this deal isn't
as attractive as it seems.
Occasionally, though, the deal is a genuine bargain that
can help you ease your load. How do you know whether you're getting
a deal or whether you're headed for trouble? Here are some things
to look for:
- Interest rate. Many credit cards try
to draw you in with low interest rates for a specified number of months.
After that the rates go up - often to an amount higher than normal
for the card - or higher than the interest you're currently
paying on the amount you owe. Look for offers that promise a fixed rate
lower than what you're paying now and that continues until the
transfer is paid off.
- Transaction fee. Some cards charge
you a transaction fee for the privilege of doing a balance transfer.
This fee can raise the price of your loan. Make sure you know what the
fee is and how it will affect your indebtedness.
- Penalties. Read the fine print carefully. What are the penalties if you make a late payment? Or charge something on your account after you've made the balance transfer? Are there any other conditions, such as minimum payments? Often if you make a late payment, the interest rate goes up to the standard rate for cash advances. Also, the credit card company may apply your monthly payment first to paying off any purchases on the card. And then after the purchases are paid off, towards the loan. In other words, if you continue to use the card, you may never pay off your debt.
- Minimum payments. Make sure, also,
that the minimum payment on the loan is something you can handle. It
should be less than the total of the other loans you are paying off.
- Conditions. Not everyone qualifies
for the special low-interest deal that is advertised. Be sure you read
the fine print to make sure you do, or you could end up paying more
for the balance transfer than you did for the original loan.
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Survival Rules When You Can't Pay All Your Bills
When creditors are phoning you and the money doesn't seem
to stretch far enough, it's easy to loose your head. Here are a few simple
rules to keep things from getting worse.
Survival Rule #1: Don't wait until things
get totally out of hand. Take action as soon as you see a problem developing.
Survival Rule #2: Cut up those credit cards.
Don't borrow on them to pay bills you can't pay. It will only escalate
the problem.
Survival Rule #3: Don't bounce checks.
In some states, bouncing a check is a worse crime than not repaying a
debt. If you can't pay, be honest with your creditor.
Survival Rule #4: Consider debt consolidation.
Survival Rule #5: Call your creditor(s)
and try to work something out. Your creditors know that if you have to
declare bankruptcy, they may not see a single penny of the amount you
owe them. They have a vested interest in making an arrangement with you
that protects their money.
Survival Rule #6: Go to a credit counselor.
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Credit
Counselors
There are credit counselors in every city in the U.S. You can find them
in the Yellow Pages under "Credit and Debt Consulting Services."
Some are privately run; others are non-profit organizations. All are dedicated
to helping people with financial difficulties manage their debts and repay
the money they owe.
They work with you and your creditors to arrange a payment
schedule that allows you to repay your debts on the income you have. In
return, your creditors agree to take no further action, provided you keep
to your commitment.
Credit counseling is an excellent way to avoid the stigma
of bankruptcy. Creditors like it because they get their money. Debtors
like it because it protects their credit rating, while taking some of
the pressure off them.
The Consumer Credit Counseling Service is probably the most widespread and best known of these organizations. It is non-profit. Their services are free, although, if you work out a repayment schedule through them, they may charge a small fee to administer it. For an office near you call 1-800-338-CCCS.
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Bankruptcy As A Last Resort
If all other avenues of relief fail, you may find you find
yourself forced into bankruptcy.
This is a last resort. If you declare bankruptcy, it goes
on your credit history. It will be almost impossible to obtain credit
for 7-10 years, depending on the type of bankruptcy you declare.
Chapter 7 allows you to totally wipe off the majority of
your debts. You also lose all your assets, except for a small portion
protected by law. Some debts cannot be eliminated by Chapter 7. These
include child support, alimony, student loans guaranteed by the government
and income taxes for the previous 3 years. This type of bankruptcy remains
on your credit record for 10 years.
Chapter 11 allows you to restructure your debts by establishing
a schedule to pay them off over time. You get to keep your assets and
your creditors agree not to take any further action, as long as you keep
to the payment schedule. This type of bankruptcy remains on your credit
record for 7 years.
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Credit Card Balance Transfers