If you are like most Americans you are in debt up to your eyeballs. According to congressional inquiries and testimonies the average American has over $10,000 in unsecured debt. Many people have over $50,000 or more in high interest credit card debt. This is actually encouraged by big banks and credit card companies like Capital One and Citibank as it provides them with huge profits. They need these profits to pay the 100 million dollar salaries and expensive million dollar perks of their top executives. So, being this is the case, how can you get out from under it and regain your life?
It doesn’t matter how deep you are in debt or what stage you may be at – one late payment or several with collection agencies calling you daily. These steps will help put you back on the road to financial recovery and even being debt free. First, you need to look at yourself and admit that you caused it. Yes, the credit card and banking industries make debt so easy and enticing so it is almost like a drug. But you have to stop falling for it. It all starts with taking responsibility for your actions.
First, get out all your bills, store cards and credit cards. Take the time to call each and every cards customer service or helpline and request a drop in the interest rate. The phone representative that you first talk to will most likely not be able to do this and may even say that they won’t do it. You have to always ask to speak to a supervisor. The supervisor has the ability to drop your rate of interest considerably. According to Money Magazine, 95% of all credit card companies will drop the interest rate if you threaten them with taking your business elsewhere – so it does work. If you do this for all of your cards you will end up with some pretty big savings. Put this savings back into paying off the highest interest rate cards first. Most debt relief agencies will charge you money for this step and they can’t do it any better than you can!
Next, cut up all your credit cards except for one. You still need one for true emergencies, rental cars, etc… Then cut up all store cards. They are the worst as they have the highest rates upwards of 24% or higher and worst terms. They are some of the worst debt creators out there and their only purpose is to sell more merchandise for the store and make them more money. Equate them to arsenic for your credit report.
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Now, if you have some late accounts that are in arrears or collections you probably already know this as bill collectors and collection agencies are pretty prompt about contacting you. If not, you most likely found out by using the above step in inquiring for a interest rate decrease. Another good preemptive step is to pull your credit report (do not use freecreditreport.com as they will automatically sign you up for their monthly credit check program which is not free). It costs around $15 to $40 to get it with the credit score. You can get one free credit report per year in most states, but it is virtually meaningless without the credit score.
With your credit report you can see what the actual status of your credit and score are. This is what lenders look at when you want to buy items like a car or a house to determine your credit worthiness. If you have bad credit, don’t fret. We have several, excellent, award winning articles on bad credit and how to fix your credit report. Basically, with your credit report and your bills and after having negotiated the best terms possible on all your accounts, you are in the best position to make a plan to get out of debt and keep it from ever reoccurring again. Yes, emergencies do happen, but 99% of all debt is not true emergencies. Those expensive shoes or that flat screen TV on sale does not qualify as an emergency. You probably will find that true debt relief will take a while but it will be so worth it in the end.
If you notice, I did not mention bankruptcy because it is only for the most extreme cases and even then the laws have changed so that it no longer wipes out all debts. Instead the filer would be put on forced payment plan to pay off items like credit card debt and store cards. Bankruptcy no longer is a sure thing and it costs twice as much as it did in the past. Now it is up to the judge and what he deems the debtor is responsible for and what the laws state. Bankruptcy also stays on your credit report for 10 years and absolutely ruins your credit (there are ways around this temporarily, though see our article on removing bankruptcy and judgments from your credit report for more on this).
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