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How to get out of $40K credit card debt

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Steve BucciDear Debt Adviser,
I was reading an article on debt and found your column. I need advice. I have about $40,000 in credit card debt, and I'm 1 month behind on my mortgage. I'm probably a few months behind on some of my credit card debt and not sure what to do. Is bankruptcy an option? Should I sell my house and work on correcting my financial troubles? Or should I just pay what I can? Thank you.
-- Ronald

Man laying on the couch looking at his credit cards © iStock

Dear Ronald,
I'm glad you contacted me. If you're willing to work at this problem, I'm sure I can help. A regular income, assuming you have one, is important for taking control of your finances. Now you just need to determine what to do.

Because you use the word "probably" to describe how far behind you are on your credit card accounts, it's clear you don't have a good grasp on how much you owe, how late you are or how close you are to a foreclosure. To set you straight, I want you to begin your comeback by speaking with a counselor at a nonprofit credit counseling agency. You can locate 1 through the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

Rebuilding your credit can be a long process when going in blind. Check your credit report and credit score for free at myBankrate.

Your counselor will ensure you don't fall into foreclosure by mistake. Most mortgage payments have a 15-day grace period. However, once a payment is late, the next month's payment is considered late if not received by the first of the month. So, by the time you think you're 2 weeks late, you may actually be 2 months late and on the verge of a foreclosure action. Most creditors do want to help, but only on their terms and terms that their regulators approve. Your counselor can help you take advantage of any assistance programs that might help.

Once you have your options laid out from your housing and credit counseling, you will have some decisions to make. Here are a couple of things to weigh:

  • Are you better off renting or owning? You need to live somewhere.
  • Can you catch up on your missed mortgage payments? If you don't have the money, and if your lender is unwilling to work with you, you may need to sell your home.

Your next decision will be how to manage your $40,000 in credit card debt. If you have the income and the desire, a debt management plan through the credit counseling agency may work for you. You would pay off your balances in 5 years or so with your creditors' help in the form of lower interest charges and waived late fees. Debt settlement may also be an option for you. But I rarely recommend it, and then only if you either do it on your own (not easy) or through an attorney (costly). Either way, it's no laugh riot!

Bankruptcy may be an option, but from what you have said, I think you can get out of this dilemma without the years of damage to credit, higher insurance bills, reduced job and promotion prospects, and more. Bankruptcy is a last resort. But, if you don't have the income to both live and repay your debt, bankruptcy may be necessary. After you've considered your other options, you may want to contact an attorney for a consultation.

Good luck!

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To ask a question of the Debt Adviser, go to the "Ask the Experts" page and select "Debt" as the topic. Read more Debt Adviser columns and more stories about debt management.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

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