BankSITE® Tips For Better Borrowing: Your Credit Options

Sometimes it happens. Even when you truly try to manage your money well, you find yourself in a situation where you can't pay all your bills. Perhaps you've lost your job. Or maybe you've had some emergency expenses.

Don't panic.

Things may seem rough, but there are ways of handling the problem. There are things you can do immediately to limit the damage. You can also restructure your debt with the help of Credit Counselors.

Or, as a last resort, you can declare bankruptcy.

When creditors are phoning you and the money doesn't seem to stretch far enough, it's easy 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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Debt consolidation is a way of reducing your total monthly payments on your outstanding loans and credit cards.

How It Works
Debt consolidation is a loan to pay off other loans. You total your outstanding obligations and receive a lump sum to pay them off.

You then have a new loan, the principal of which is the total of the previous obligations. You make monthly payments on that new loan<\->essentially trading several payments a month of just one, lower payment.

Things To Be Aware Of
While debt consolidation can make your monthly payments more manageable, it can also be the most costly type of loan. This is because you end up paying higher interest... or paying over a longer term. Either will increase the total amount it costs you to borrow. So you need to shop wisely for a debt consolidation loan.

You're also still vulnerable to another danger. Many people, after they've consolidated their debts to a comfortable level just go on borrowing. Before they know it, they're back where they started. Unless you're ready to put a curb on your spending, debt consolidation will not solve your financial troubles.

Tips To Make Debt Consolidation Work In Your Favor

Tip 1: Call a halt to spending! Cut up those credit cards-or put them away and don't use them except for emergencies.

Tip 2: Shop wisely for a debt consolidation loan. Look for an interest rate lower than what you're paying and a term no longer than your current term.

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.

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 can not 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.