DEBT


How to Get Out of Debt

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.

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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 (800-685-1111; www.equifax.com), Experian (800-200-6020; www.experian.com), and Trans Union (800-888-4213; 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.

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