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 AnnualCreditReport.com. 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; www.equifax.com), Experian (888-397-3742; www.experian.com), and Trans Union (877-322-8228; www.transunion.com).

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

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
Can AI Beat the Market? 10 Stocks to Watch
stocks

Can AI Beat the Market? 10 Stocks to Watch

An artificial intelligence (AI) system identifying high-potential equities has been sharp in the past. Here are its 10 top stocks to watch over the ne…
January 14, 2022

Recommended

Freeze Your Credit in 3 Steps
credit & debt

Freeze Your Credit in 3 Steps

Freezing your accounts at the three major credit bureaus is the best way to prevent thieves from opening new credit accounts in your name.
January 10, 2022
Good Marriage, Bad Credit
Starting a Family

Good Marriage, Bad Credit

Credit reports aren’t merged for married couples, but their individual records affect joint loans.
December 21, 2021
How to Nix Checking Fees
Making Your Money Last

How to Nix Checking Fees

Strictly free accounts aren’t the only way to bank - almost all banks and credit unions offer ways around paying fees.
December 20, 2021
What Does Your Credit Score Really Mean?
Basics

What Does Your Credit Score Really Mean?

Your score helps lenders assess the likelihood you’ll repay a loan. It can also help you assess your credit health.
December 20, 2021