Deep Debt Trouble

It's a sure sign of the times: millions of Americans are having a hard time keeping their heads above water. Credit card delinquencies are up 18 in the last three months. People are walking away from their homes because they can't make the mortgage payment. What about you? Is your stomach in knots when the mail arrives or the phone rings? Find out the steps you can take today to begin digging yourself out of this debt trouble. Personal finance experts Ken and Daria Dolan of Dolans.com walk through your options.

Mouse over the photo at left, and use the arrows to click through our gallery and see the Dolans' expert suggestions for dealing with debt trouble.

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Make at Least the Minimum Payments

While you are working on debt relief, do everything you can to keep making the minimum payments on your credit cards. Of course, we'd love for you to pay MORE than the minimums each month so you can pay your credit cards down faster. But at least make your minimum payment so you don't get hit with huge penalties and interest. Perhaps most importantly, it will keep your credit debt in the hands of your credit card company rather than having it turned over to a collections agency.

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Try to Negotiate ...

If making even the minimum payments on your loans is getting to be too much for you, it's time to go directly to your creditors and try and negotiate. You can negotiate for a lower minimum, lower interest rate or different payment terms. Trust us: Your creditors want to get paid -- they may not like having to reduce your payments (and they may even put a nasty mark on your credit report), but you stand a good chance of getting at least one or two of your creditors to make a reduction. Just remember to be polite and non-confrontational when you call ... and tell them what you CAN pay every month. If the rep you're talking to isn't a help, ask to speak to her supervisor.

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Consider Credit Counseling

If you're getting nowhere with your creditors directly, then it's time to contact a credit counseling service. A good credit counseling service will help you create a personal spending budget. Most also offer debt management services in which they'll contact and negotiate lower payments and interest rates with all of your creditors. (Plus another benefit is you only need to write one check to the service and they'll distribute the payments for you.) There are both private and non-profit organizations in this arena, but beware -- there are some shady characters in this field. We suggest starting with the National Foundation for Credit Counseling (NFCC.org), a non-profit that includes the longstanding and reputable Consumer Credit Counseling Service.

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Consolidate Your Debt

If you're constantly robbing Peter to pay Paul every month -- juggling payments on car loans and credit cards -- then debt consolidation might be the best answer for you. With it, you can roll all of your balances into one big loan. It'll reduce your monthly debt, plus it should reduce the amount of time it takes to pay it all off. There's one catch: Your credit needs to be decent in order to get a debt consolidation loan, so if you have a lot of credit dings and dents due to spotty payments, this may not be an option for you.

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Settle if You Can

If you're way past due on a credit account, you may be able to make an offer your creditor can't refuse. This is especially true if the account is so delinquent that it's already been turned over to a collection agency. In this case, call your credit card company and offer to settle your debt by making a reduced one-time payment that will clear up the debt for good. This is only in the event you can't pay the account off in full and have no hope of doing so in the near future. Settling your debt can prevent a lawsuit and even the resale of your debt to another creditor. Offer 50 to 70 cents for every dollar you owed -- so offer to pay $500-$700 on a $1,000 debt. Debt settlement will show up on your credit report, so your score may suffer, but you'll do far more damage by having an open delinquent account on your record.

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Bankruptcy as a Last Resort

When you've exhausted all other options we discussed and you don't see any other way out, bankruptcy may be your last resort. Bankruptcy certainly isn't something to jump into lightly. It will ruin your credit for several years, and will even affect your ability to rent a home and secure a new job! If, after doing some numbers-crunching, you determine it'll take you longer than FIVE years to pay off everything you own, then you may want to go the bankruptcy route. But before you do...

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Bankruptcy Options

If bankruptcy is your only answer, keep in mind you have two options. Chapter 7 allows you to wipe out most, if not all, of your debts while Chapter 13 works out a realistic repayment plan under court protection. As appealing as Chapter 7 might sound, keep in mind that your income might be too high for you to qualify for it. With Chapter 7, not all debts are excused. You don't get to skip out on Uncle Sam, nor will you be free and clear of any outstanding child support or alimony payments. Also, a Chapter 7 bankruptcy will stay on your credit report for 10 years, as opposed to Chapter 13, which will be removed after 7 years.

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Communication Is Key

As you try to get out from under your debt, the single most important thing you need to do is keep the lines of communication open with your creditors. Evading phone calls from creditors and collection agencies and tossing out reminder notices will only get you in deeper trouble. Instead, address these phone calls and letters directly and promptly. Be open and tell them your situation -- e.g. you lost your job, you're going through a divorce, etc. -- and make sure they know your main goal is to work on repaying them in some form. Remember: The more upfront you are with your creditors, the less likely you'll be harassed. You'll also stand a greater chance of working out a reasonable repayment plan directly with them.

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Know Your Rights!

Speaking of harassing creditors, we want you to be fully aware that you DO have rights when it comes to how your creditors "work" with you. No matter how much hot water you're in, you're protected by the Fair Debt Collection Practices Act. Your creditors can't contact you before 8am or after 9pm. They also can not call you at your place of employment unless you give them permission. Debt collectors are also barred from falsifying who they are, or making false threats (like telling you that you will be arrested or will lose your home if you don't pay up). To find out more about your rights, check out the FTC Web site.

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