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Advice Team Responses
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Dealing With Debt: Paying Off Debt |
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I am in over my head. I made a BIG mistake by getting too many credit cards. Now I can’t get out from under. What do you recommend? -Julie |
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Julie,
Fortunately, there are many options to repay unmanageable debt. The first is to take a look at your income and expenses and make changes that would allow you to pay off this debt. By identifying where your money is actually going you may be able to identify areas that you can trim. Non-essential items such as, cable or satellite TV, extended cell phone features, meals out and entertainment can really add up. By simply reviewing your situation, you may be able to tackle this on your own. If you feel overwhelmed, a credit counselor can help you complete an assessment and establish a livable spending plan.
A second option is to establish a debt repayment plan (DMP) with Money Management International (MMI). Through the DMP, your counselor should be able to negotiate a repayment plan with your creditors.
Another option is to try and "settle" this debt for less than the full balance. But you must be aware, if they accept your settlement offer, you must send in the settlement balance immediately. You also must consider that there may be an impact on your ability to get credit in the future.
A fourth option is to seek a consolidation loan. In this scenario, the first hurdle will be to qualify for the loan.
Finally, if all other attempts to repay your debt fail, you may consider bankruptcy as an option.
Best of luck,
The Advice Team |
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I have $14,000 in credit card debt on four different cards. I just got a new job and am making more money. I want to pay off all my credit cards. What do you think is my best bet? -Renee |
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Renee,
There is really no wrong answer to your question. I consider any way you choose to pay down debt a good way! However, there are two popular methods that people use to tackle debt. One is to concentrate on paying off the debt with the smallest balance first (never forgetting to make required payments to all debts, of course!) After that balance is repaid, you can then apply that payment to the card with the next smallest balance and continue the process until all debts are satisfied. This method can be very rewarding because you see progress quickly. The other popular method is to first concentrate on repaying the debt with the highest interest rate. This method will save you the most in interest charges over time.
I am sure you will do well regardless of which method you choose.
The Advice Team |
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I want to pay off my credit card debts, but I am afraid that it will negatively impact my credit score. My score is now around 650. Will paying off the cards help or hurt? -Derek |
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Derek,
If you are paying high interest charges each month, it might be worth it to take the risk. In making your decision, you should know that there are many factors that impact your credit score. As we understand, your payment history accounts for 35 percent of your score, the amount you owe is 30 percent, the length of credit history makes up 15 percent, new credit is 10 percent and your credit mix (credit cards, store charge cards, loans, etc.) is 10 percent of your score. The number of times you apply for credit and the frequency of these attempts to get credit are also taken into consideration.
Good luck with your decision,
The Advice Team |
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We have a $9,000 balance on our credit card, that we've never had before. The problem is I always try to pay $1,000 on it every month, but in so doing it drains our monthly income so therefore, we end up having to charge on the credit card. Any suggestions? -Ken
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Ken,
Your intentions are great, but perhaps you are setting your sights too high. It is very, very important for any financial goal to be realistic.
Next month, send a smaller amount ($800 for example) and see if you make it without relying on credit. If this does not work, keep inching downward until you find that comfort zone. With commitment as strong as yours, I am sure you will be out of debt before long!
Good luck,
The Advice Team |
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When negotiating with collection agencies about old charge card debt, is it better to call or to write? I've ordered copies of my three credit reports and I want to negotiate for the lowest possible amount. I had planned to get some form letters to use and then get a signed statement from them with the terms agreed upon. Is it better to deal with them by phone? -Steve |
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Steve,
You are on the right track. Getting a signed statement is definitely recommended. You can initiate negotiations over the phone (this will be faster), but once you have come to an agreement, you’ll want to get it in writing.
The Advice Team |
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