Dealing with Credit Card Debt

Should You Declare Bankruptcy?

Faced with enormous credit card debt, many students choose to declare bankruptcy. However, according to Charnes, bankruptcy has several serious effects:

• It goes on your credit rating for up to seven years, making it difficult to obtain new credit (and credit cards). This means you have to pay cash for everything, even airline tickets.
• You will have problems passing a credit check – for an apartment, rental car or even a job
• It’s a turn-off to potential employers. “Many employers are not interested in hiring someone who cannot handle [their] own money,” Charnes says.

Also, declaring bankruptcy does not wipe out student loans. Student loans are generally only discharged if the date of bankruptcy is more than 10 years after studies have ceased.

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Getting Out of Debt

Even if you are drowning in debt, there are some ways out:

• Contact your credit card company and try to work out a payment plan. “They are not out to get you,” Charnes says. “They would much rather lower your interest or write if off altogether than not get any money from you at all.”
• Get help from a consumer credit counseling center. They can help you work out different payment options for your credit cards. But avoid credit groups that advertise on television. “They tend to charge money for their services, where the consumer groups don’t,” says Nellie Mae’s Prikazsky.
• Set up a budget and stick to it. Be realistic about your expenses and your financial needs, then draw up a detailed monthly plan.

Colette and her husband have managed to reduce their credit card debt. They went to a consumer credit counseling office, where they worked out a budget and arranged to have their interest payments lowered over the next two years.

“Things are looking up,” Colette says. “We are down to about $40,000.”

Research Your Options

Before you accept credit cards in the future, you should research which companies offer the best values. Web sites such as CardWeb offer information on fees and interest rates that you can use to choose the best card for you.

Find your nearest consumer credit counseling center, along with useful information about credit records and debt, through the National Foundation for Credit Counseling, a non-profit organization made up of 1,300 financial service centers. You can reach them by phone at (800) 388-2227.

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With the right tools and management, credit card debt doesn’t have to follow you forever. Check out your options, read the fine print and know that help is available.

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