Don’t wait. If you’re having a serious problem paying your bills on time or have fallen behind on some of them here are your most important two words: Don’t wait. We understand that the idea of calling your creditors can be scary and humiliating. But if you truly want to get your debt under control you need to be proactive, which means contacting your lenders instead of letting your accounts get charged off or go to collection – either of which will seriously damage your credit score. In fact the very worst thing you can do is … nothing.
Know how much trouble you’re in
Your first step – and this may be a painful one – is to make a list of all of your debts with the name of each lender, the balance you owe, it’s minimum payment and interest rate and the last time you were able to make a payment. Next, separate them into two categories. The first should be secured debts such as your mortgage (if applicable) and any auto loans and student loans, The second category will be your unsecured debts, which would include credit card debts, personal loans medical debts and any other debts where you were not required to provide any collateral to secure them.
There is very little you can do about your secured debts but you can work on the unsecured ones. This means calling your creditors and asking about debt settlement. So long as your accounts haven’t yet been written off the odds are that at least some of your creditors will agree to settle with you. You will need to prove that you’re having such a serious financial hardship that you’re close to filing for bankruptcy. And you will also need to have the cash in hand to pay for any settlements you are able to negotiate.
It may take time and patience
When you first contact one of your lenders you’ll most likely be connected with a customer service representative that doesn’t have the authority to negotiate with you. You will need to be patient and work your way up the chain until you reach a person that does have this authority. Be forewarned that this person will not be anxious to settle with you so it may take some back and forth negotiating before you reach a settlement number to which you both can agree. And again as you read in the previous paragraph, you need to be able to convince that person that if you’re not able to come to a fair settlement, you will be forced to file for bankruptcy. Some experts actually suggest that you lead with this.
A second way to be proactive
If you act quickly you might be able to avoid having to contact your lenders by getting consumer credit counseling. One of the best of these agencies is the Consumer Credit Counseling Service, which has offices in many cities. If you can’t find a credit counseling agency near where you live there are numerous ones available online. Just make sure you choose one that has a good reputation and is a non-profit.
Whether you get credit counseling face-to-face or over the Internet you will have a debt counselor that will spend 45 minutes to an hour reviewing your finances. She or he may suggest a budget that would enable you to catch up on your debts but what’s more likely is that the two of you will create a debt management plan built around the payments you could afford to make. If you agree to the debt management plan (DMP) the counselor will talk with your lenders to first see if your interest rates can be reduced and then second to see if they will agree to your DMP. If all or most all of your lenders agree to your DMP, you will no longer be required to pay them. You will mail one check a month to the credit counseling agency and it will then distribute the money to your lenders. On the average it takes five years to complete a DMP and you’ll be required to give up any credit cards that are in the plan. But your monthly payment should be much less than the sum of the payments you are currently making – and you’ll know exactly when you will be debt free.