Don’t Let Debt Get Out of Control

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A record 20.2 million Americans lost their jobs in April. Millions more filed unemployment claims in March and in the first week of May. Many, if not most, of these people have outstanding debt and other financial obligations which they now may have difficulty handling.

Many creditors are taking actions to assist debtors in financial distress. Naturally, you should take advantage of any options your creditors offer. If you have lost your job, contact all of them so you understand the options available.

The thing to keep in mind is that by being proactive, you can keep a bad situation from becoming disastrous. Here are some things to consider:

Minimum payments: You may be accustomed to paying your credit card balances in full monthly. Without a job, that may not be possible. You should at least pay the minimum monthly payment, if you can manage it. If you can’t, you will incur immediate fees from your creditor. If you default, you run the risk that the creditor will sell the account to a credit collection firm. Dealing with a collection agency is much less pleasant, and your credit rating will be impacted. Try to avoid that.

Interest rate: if you do not pay the entire card bill monthly, you will incur high interest rate charges. You may be paying interest at rates well in excess of 20%. If you have an outstanding balance, and cannot pay the outstanding balance in full, don’t hesitate to ask your creditor for a lower interest rate. As long as you are making some payments, your creditor may be willing to negotiate a better rate. Since many cardholders won’t be able to make any payments, many creditors will be willing to negotiate lower interest rates as long as you are making some payments.

Selecting a credit card: Many people use multiple credit cards. You may be paying some credit card bills in full each month and making minimum payments on others. If you have a choice, you should always use a credit card a balance you are able to pay in full at the end of the month. If you have credit cards on which you carry a balance each month, every time you make a new purchase, you immediately incur interest charges.

Prior purchases: Many of us make large purchases of such things as furniture, appliances and even health care from companies that offer “free credit,” provided you pay the outstanding balance in full by the end of a stipulated period. If you fail to pay the balance in full by that stipulated date, you may incur very large interest fees, perhaps as high as 29%, calculated from the date of the initial purchase. I suggest you take a close look at any outstanding debt you incurred under such arrangements. You should make it a priority to pay these balances in full by the end of the specified period. It is more important to pay off these balances than other credit card balances you may have.

Home equity loans: Interest on a home-equity loan is likely much lower than the interest on your credit card debt. Accordingly, if you have not used all the equity you have in your home equity line of credit, you should consider using it to pay off credit card balances and other past purchase balances for which you face very large interest charges.

(SOURCE: TCA)

(Article written by Elliott Raphaelson)