Credit card debt
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Are you drowning in credit card debt? If you can't afford the minimum payments on your credit card bills, don't just let the debt pile up. Follow financial expert David Bach's roadmap to get back on solid financial footing once and for all.
If You Can't Afford to Make the Minimum Payments, Here's What You Should Do

First, take advantage of Help With My Credit, a resource for struggling consumers created by a group of major card issuers, including Bank of America, Capital One, Citi, and Discover Card, plus the MasterCard and Visa networks. The service—which is available through both a toll-free number, (866) 941-1030, and a website—offers tips on managing your credit cards, communicating with the card companies, and finding an accredited credit counselor.

Ask the Credit Card Companies About Their Debt Management Plans

In an effort to prevent too many consumers from defaulting entirely on their debts, the credit card companies are now offering customers what they call debt-management plans. In a typical DMP, you can get your interest rate slashed (and sometimes eliminated entirely) in return for signing on to a guaranteed repayment program, in which payments are automatically debited from your checking account each month.

I've coached people who had their interest rates cut from 29% to zero as a result of signing up for a debt-management plan. On top of that, card companies are often willing to waive the monthly over-the-limit fees for DMP participants who've exceeded their credit limits.

The downside to these programs is that once you sign up, the credit card company will usually close your account or at least "freeze" it so you can't use it anymore. As we'll see in the next step, this can lower your credit score. Indeed, simply reporting that an account of yours has been placed on a payment or settlement plan can hurt your credit rating.

An explanation of how your credit record may be affected and whether they will notify the credit bureaus is usually included in the contract the card companies make you sign before they let you begin a DMP. Before you sign, READ THE CONTRACT! It is crucial that you understand just what you're getting into (including what happens if you don't stick with the program).

Some credit card companies won't report your participation in a DMP if you ask them not to. Not paying your cards at all will hurt your score a lot more than being in a DMP plan. So will having your debt "charged off," which is what happens if you stop making payments altogether. Anyway, once your debt is paid down, your credit score will head back up again.
If the Credit Card Companies Can't Help You, Get Counseling

The more work I do with credit-challenged people, the more I am becoming an advocate for consumer credit counseling. The only catch is that you have to find an honest company to work with. If you can—and it's not all that hard—the benefits can be enormous. A good nonprofit credit-counseling agency will show you how to deal with your spending and create a payment plan to pay down your debt. They can also help you negotiate a debt-management plan with your creditors. In 2009, the credit card companies reached an agreement to make it easier for nonprofit credit-counseling organizations to help people in
"hardship" situations. So ask about the new DMP rules when you call.

To get connected to a reputable nonprofit credit counseling organization in your area, contact the National Foundation for Credit Counseling by calling toll-free (800) 388-2227 or by visiting their website at

In addition to the NFCC, you might also contact one of the following organizations for help with credit card debt:

Association of Independent Consumer Credit Counseling Agencies
(866) 703-8787

Money Management International
(866) 304-3818

(866) 312-2887

Take Charge America
(877) 822-6060

An Important Warning About "Nonprofit" Credit Counseling

Not all credit counseling is created equal—and "nonprofit" doesn't necessarily mean fair or honest. You must investigate whomever you use before you use them. Check with the NFCC as well as the local office of the Better Business Bureau. In addition, ask the agency you're considering for references. You'll want to speak to at least five customers they have helped.

Do not use a credit-counseling service that does any of the following:

1. Charges you high up-front or monthly fees to enroll in a debt-management plan

2. Pressures you to make "donations" for their services

3. Tries to enroll you in a DMP without first really looking at your situation, reviewing your bills and budget, or educating you about basic money management skills

4. Demands that you make payments to a DMP BEFORE the credit card companies have accepted you into a program

5. Refuses to put in writing what they are promising to do to help you

6. Won't provide referrals of people they have helped

Beware of "Debt-Settlement" Companies

As much as I am an advocate of credit counseling, I am leery of "debt-settlement" companies. These outfits offer to negotiate a settlement on your behalf with the credit card companies, often promising that they can "wipe out your debt or cut it in half." Their standard procedure is to tell you that if you stop paying the credit card companies and pay them instead, they will then be able to negotiate a settlement for you. In fact, there is no way to guarantee that your credit card company will accept a settlement from one of these companies.

Be very careful—it's amazing how many people I have seen ripped off by debt-settlement companies. One couple I did a "makeover show" with made payments to a debt-settlement outfit for a year—only to find they never paid off any of their credit card debt. It almost pushed them into bankruptcy.

Get more debt help by downloading your free copy of Chapter 3 in Bach's new book Start Over, Finish Rich
Adapted from Start Over, Finish Rich. Copyright 2009 by David Bach. Reprinted by permission of Random House, Inc.


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