Dealing with Credit Card Debt

The remedy

Paying Off Your Debt

If you default on your credit card bill—that is, you just stop paying anything for a period of time—your credit card company normally will sell your debt to a collection agency. If this happens, watch out, because the collection agency will add its fees onto your bill. Before you know it, your $3,000 credit card debt has ballooned to $5,000, and you're in even worse shape than before.

If you're in trouble with credit card debt, the first thing you should do is get a copy of your credit report from one of the three big, nationwide credit agencies. You can do this online, or by requesting a copy in writing. There's a charge of about $8.50 for a report, depending on the state in which you live.

Each of these agencies probably has the same information concerning your credit history. They get it from banks, finance companies, credit card suppliers, department stores, mail order companies, and various other places with which you've had dealings. Smaller, regional credit bureaus supplement the information.

The big three when it comes to credit agencies are as follows:

• Equifax Credit Services, PO Box 740241, Atlanta, GA 30374; toll-free: 1-800-685-1111; www.equifax.com

• Trans Union, PO Box 2000, Chester, PA 19022; toll-free: 1-800-888-4213; www.transunion.com

• Experian, PO Box 2002, Allen, TX 75013; toll free: 1-888-397-3742; www.experian.com

Once you get a copy of your credit report, examine it carefully for errors, and note when your credit troubles began.

When you fully understand your credit history, try to negotiate a repayment program with all creditors. Some credit card companies and other creditors will work with you to establish a payment schedule that you can meet. Let them know that you acknowledge your debt and will work in good faith to pay it off. Once a payment plan has been established, be sure to stick to it.

Repaying loans on which you've defaulted won't undo a damaged credit history, but it may help you to be able to get credit in the future.

If your credit has been severely damaged and you're unable to pay back your debt, you should talk to a nonprofit credit advisor. A listing for such as person can be found in the yellow pages of your phone book under credit and debt counseling. A credit advisor may be able to help you consolidate your debt and find a lower- interest loan that you could use to pay off higher-interest credit card debt. Be ready to cut expenses elsewhere until your credit card debt is repaid.

Finding a Better Deal

If you haven't read over the terms of your credit card agreement lately, take a little time to look at it. What interest rate does your credit card company charge? Ten percent? Twelve? Eighteen? Twenty?

What sort of advantages does your card provide? If you're not earning any “rewards” from your card, such as flyer miles, you might want to take a look at what's out there. Many credit cards give you points for every dollar spent, then let you use your points to get free flights, clothing, dinners out, books, CDs, and so forth.

Be careful, though, if you don't pay off your bill every month. Cards that offer rewards may come with much higher interest rates than standard cards.

If you're paying an annual fee on your credit card, either look for a card that doesn't charge the fee, or ask your credit card provider to waive it. There's intense competition among credit card companies, and many will do whatever's necessary to keep you on board.

And, watch for late fees on your card. Most providers charge at least $20 if your payment comes in even a day after the due date. If your payment is late once, call and ask to have the fee waived.

Remember that there are hundreds of credit card deals out there, and many, many companies that would love to have your business. Compare the terms of various credit cards, and select one that sounds right for you.