credit & debt

How to Get Out of Debt

There are several steps you can take to ensure your credit rating isn't ruined.

Whatever the elusive "proper" level of debt may be, a lot of people are exceeding it. Despite generally widespread prosperity for the past decade or so, Americans have been going broke in record numbers, filing for personal bankruptcy as never before.

If you see such drastic action looming in your future, better to take some steps now before your credit rating is ruined.

Roll your debts into a lower-rate loan. Perhaps you can reduce your monthly payments by combining your major debts into a longer-term loan at a lower interest rate. This can be an especially rewarding strategy for credit card debt, which clobbers you with the highest interest around. A home-equity loan may make sense. The rate will be lower, and you'll reduce the number of checks you have to write each month. But before you take this step, learn about home-equity loans.

Switch to a lower-rate credit card. Credit card offers are everywhere, and card issuers will gladly arrange for you to roll balances on existing cards into a new account with them, provided your credit rating is still good. Just make sure that you don't sign up for a low introductory rate that converts to a high rate after only a few months.

Check your credit record. You can get a free copy of your credit report from each of the bureaus every 12 months at And you can get a free credit report if you've been denied credit in the past 60 days. Also, federal law requires the credit-reporting firms to provide free reports to people who are out of work and looking, who are on welfare, or who believe that their credit record is inaccurate because of fraud.

The credit-reporting agencies are Equifax (800-685-5000;, Experian (888-397-3742;, and Trans Union (877-322-8228;

Confess to your creditors. If you know things are going to get worse before they get better, call your creditors and spill the beans. Tell them you that can't pay on time but are determined to pay them back. Could they possibly stretch out the payments for you? Some will do it, and some will even waive interest and late fees for a while. If you get such an agreement, follow up with a letter to the company describing the terms you discussed. This protects you later if the company decides to change its mind.

Know your rights. See our section on credit rights.

Get help. If things are looking bleak and you can't handle it alone, consider calling the nonprofit National Foundation for Credit Counseling (800-388-2227), which operates more than 2,000 local offices. The national number will put you in touch with the local office of the Consumer Credit Counseling Service, where counselors can help you set up a repayment program and negotiate with your creditors for reduced monthly payments and lower-or even waived-finance charges. The CCCS then helps you set up a budget that calls for you to make one monthly payment to the service, which parcels it out to your creditors. There may be a small fee involved.

Most Popular

3 Dated Rules of Thumb Retirees Should Think Twice About

3 Dated Rules of Thumb Retirees Should Think Twice About

The tried-and-true investing and saving rules of thumb retirees depend on may no longer be as reliable as they hoped. Don’t let dated “rules” steer yo…
August 11, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Are You Rich?
personal finance

Are You Rich?

You might be surprised. It depends on how you measure it, and the bar is changing.
August 12, 2022


The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
August 7, 2022
Sharing His Path to Success
Starting Out: New Grads and Young Professionals

Sharing His Path to Success

This Native American studied tech in the Air Force and landed his dream job. Now he’s giving back.
August 4, 2022
What to Do With Your Former Employer’s 401(k)

What to Do With Your Former Employer’s 401(k)

Leave it behind, move it to your new job’s plan, or roll it over to an IRA. Each of the options has pros and cons.
August 3, 2022
Wedding Season: 3 Steps to Empower Your Finances as a New Couple
Getting Married

Wedding Season: 3 Steps to Empower Your Finances as a New Couple

Whether you’re getting married or just moving in together, every couple needs to come to an understanding about how they will handle money and learn w…
August 1, 2022