Holiday Debt

Prioritize debts, with secured debt first (mortgage, car). A mortgage payment should take absolute first priority.

List unsecured debts (which include all the credit card holiday debt, and any other loans you may have) in order of highest interest rates. Make minimum payments on all but the highest interest rate. Use every cent of available income to make large payments on the highest interest-rate card. When that one is paid off, pay the big payment plus the old minimum payment on the next highest rate card until it’s paid off. Continue until you’ve eliminated your debt.

Find help – carefully. Your best resource is handling debt yourself, because it protects your credit score. But if that’s impossible and you are in serious debt, understand your options:

1. Negotiate – If you cannot make even minimum payments, call your creditors and ask for temporary hardship status. Some creditors will work out payment plans with you.
Pro: Can provide longer payment terms. Con: Individual consumers may find it difficult to negotiate effec¬tively with large creditors.
2. Debt resolution – Debt resolution firms negotiate with creditors on the consumer’s behalf to lower principal amounts due. Consumers then pay the debt resolution firm a percentage of savings obtained. Debt resolution can obtain significantly better repayment terms than achieved with Chap¬ter 13 – and with no bankruptcy judgment – especially for those facing financial problems because of a catas¬trophic event or medical problems. Pro: Savings can often reach up to half the full amount owed. It’s the fastest way out of debt without Chapter 7 bankruptcy; consumers can be out of debt completely within three years. Con: It can impair your credit score.
3. Credit counseling – Most credit counseling agencies receive funding from creditors, putting any allegiance to consumers in question. And, in constructing “debt management plans” for consumers, they will reduce only interest rates, not principal owed. Pro: Lower monthly payments – possibly. Con: Up to five years of making payments, and minimum payments may not significantly decrease. Enrollment in credit counseling also shows up as a negative on a consumer’s credit report. New bankruptcy laws demand that consumers seeking bankruptcy protection obtain credit counseling from an approved

agency within six months prior to filing for bankruptcy. However, the Internal Reve¬nue Service recently revoked the tax-exempt status of all 41 credit counseling agencies it audited, effectively shutting down more than half the industry. Fewer than 50 government-approved credit counseling agencies are in operation.

Chapter 7 bankruptcy – Wipes out almost all debt. Pro: Eliminates debt. Con: Long-term adverse credit rating consequences. Chapter 7 protection is more difficult to obtain in the wake of last year’s bankruptcy reform.

Chapter 13 bankruptcy – Even with bankruptcy reform in place, Chapter 13 filings – which re¬quire consumers to repay debt on a repayment plan – will still be available to those whom the state determines, through its means test, have enough in¬come to pay back at least some of their debt. Pro: May reduce debt and stop collection calls. Con: The publicly available bankruptcy judgment remains on a consumer’s long-term credit report for 10 years. Repayment terms generally are less favorable than those found with debt resolution.

Bills.com makes it easy to apply for the help that you need at: https://www.bills.com/debthelp/debt/

What to do next (to avoid the problem next year)

1. Take hold of your finances and learn to control spending by educating yourself on often-complex personal finance issues.
2. Budgeting is a mainstay. It need not be “rocket science,” and can be very straight-forward (see above).
3. Many Web sites exist now for personal finance education, including Bills.com.
4. Some sites also offer comparison shopping for everything from long-distance phone service to mortgage rates. Using a site that offers both helpful information and comparison shopping can make basic financial tasks more efficient and pleasant.

“For those who are over their heads in debt, taking action quickly is critical,” says Brad Stroh, Founder of Bills.com, “before it’s too late to prevent any temporary hardships from becoming permanent financial crises.”