Dear Debt Adviser,
Hi, my question is I have over $40,000 in credit card debt. I have a steady job and have not missed a payment, but I am unable to keep up with my payments. I have a wife and two kids to support and a mortgage. Should I call my credit card company to, maybe, settle my debt?
Forty thousand dollars in credit card debt is a mountain of debt, but it is not an insurmountable problem. I have helped people with six figures worth of debt find the right solution. I am sure we can do the same for you. So, let’s look at your mountain and, like any mountain climber, get you a plan, the proper training and reliable tools to make you successful.
Like any mountain climber, you will need a plan of attack. In debt climbing, this is the creation of a spending plan. Following a well-thought-out plan will allow you to make the most of your income while eliminating unnecessary spending. Your plan is a simple enough matter of listing all your sources of income, understanding where it all goes and then redirecting some of it elsewhere that is more in line with your goal.
Here are two quick examples. You earn $40,000 a year. You normally get a tax refund of about $2,000. Reduce your withholding by $100 a month. Now you still get a small refund, but you have an extra $100 a month to speed your ascent over your debts! You can find the tools you will need to create and implement your spending plan using the free education webcasts found at Moneymanagement.org. I tried the one titled Managing Income and Expenses. It took 14 minutes and was quite painless.
As you create your spending plan, be sure to prioritize both your expenses and debts. Not all obligations are created equal! For you, my priorities would be to keep a roof over your head, food on the table, and lights and transportation to get to work. You may notice premium cable-TV didn’t make my priority list. It shouldn’t be on yours either!
As you work over your spending and maximize your income, you may find your mountain may not be as steep as you thought. Armed with your plan, it is now time to review your situation and see if you can manage on your own or with some additional income from a part time job. If that doesn’t work, then it’s time to contact your lender and ask for assistance.
In these dark times, there are occasionally bright spots. One such ray of sunshine is a new program that has been implemented by many of the major credit card issuers called Help With My Credit. For assistance, you can visit the Web site at HelpWithMyCredit.org or call (866) 941-1030. The person who answers will connect you with a user-friendly, customer-service representative from your card issuer, if your card issuer is participating. If not, you will be transferred to a credit counseling agency.
Let the representative know how much you can afford to pay monthly toward your debt, and then let them determine if any of the assistance programs available will work for the budgeted amount that you know you can afford. Do not commit to anything unless you believe you can actually make the payments and get their assistance offer in writing.
If your lender is not participating in the program or if you are not comfortable dealing with your card issuer yourself, you can speak with a credit counseling agency. You should expect to receive a thorough review of your financial situation and specific recommendations for how best to move forward.
You asked about settlements. I don’t like them if they can be avoided. In a nutshell, you are at a tremendous disadvantage. You do this once and the lenders do it all the time. But they really don’t like to give up anything, so the chances of you agreeing to a settlement that comes back to haunt you is high. If you use a debt settlement company, the same logic applies, plus they may get you in even more trouble if they mishandle your case. If you must settle, I suggest you use an attorney. They are honest, competent, on your side and shouldn’t leave any lose ends.
Whatever you do, don’t touch your retirement money. Many people are raiding their future financial security to correct today’s financial mistakes. That is an even bigger mistake.