Q. I can’t pay my credit debts. My job got eliminated and my husband had a stroke and is permanently disabled. Interest rates are horrible and I’m over my limit on all my cards because of them. I can’t afford the full payment, so I have been sending them half. What should I do?
Sometimes difficult situations beyond your control can land in you in tough financial spots. And regaining control of your finances is a crucial step in getting back on your feet, but that is not likely to be all that easy. You mentioned that your credit cards are over the limit, so I would imagine that the card issuers have shut down your ability to make new charges. If not, I would recommend taking some steps that can ease your reliance on those accounts, so you can stop using them altogether and focus on eliminating the debt you already have. Here comes the harder part. Understanding that you are having to stretch a drastically reduced income to the limit, it’s worth the time and frustration to map out a detailed budget. While it may seem at first like an exercise in futility, the end result should get you closer to a point where you can prioritize your payments to create a solid strategy to avoid additional debt. To accomplish that outcome, list all your expenses starting with the most important ones like your mortgage or rent and your utilities, then continue with your car payments, insurance, groceries and so on, until you account for all your expenses. Try to reduce your budget as much as possible and don’t be afraid to be drastic since this will be temporary, until you get back on your feet. Then, realistically determine how much you have left over to pay your credit cards.
Typically, you should include your credit card payments in your budget, but for now, you can keep them separate to help you calculate and visualize how much money you can afford to pay each credit card without compromising your most necessary living expenses. Organize your debts and assign a priority to each, starting with the one you owe the most to the least. Write down each minimum payment and interest rate. If you have some income left over after you pay your monthly expenses, write down how much you can afford to pay each creditor. Now you will have some hard figures to help in your conversation with each creditor, which leads us to the next step.
When you call your creditors, you will need to explain your situation and make your intention to repay them very clear. Sometimes, creditors have temporary in-house hardship programs to help consumers get through rough spots. They could reduce your interest or even suspend your payments for a period of time. Just make sure you don’t commit to payments you cannot afford because it could worsen your situation. If you are able to reach a verbal agreement on a new payment agreement, ask for it in writing and keep it for your records.
It may take more than one call to get your creditor’s cooperation, and in some cases, they may not help at all. If that’s the case, consider enlisting the help of an NFCC-certified credit counselor. Your credit counselor can help you explore different debt repayment strategies to manage your credit card debt. They can also help you optimize your budget to make the most of your income. And if you are having difficulties keeping up with your living expenses, they can connect you with local resources to help get through. Credit counselling sessions are typically free at nonprofit agencies and you can talk to a counselor on the phone, on line or in person. The sooner you talk to your counselor, the sooner you will start to working towards repaying your cards. I wish you all the best in your efforts to get your finances back on track!
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.