Bad debts have long term consequences. Although they are easy to ignore, especially when it is unsecured consumer debt, the damage to future purchasing power and potentially, employment opportunities can be frustrating. Handling rampant debt is a process, and to learn how to solve debt problems, it must be followed with discipline until it is complete.
Damage Control
The extent of damage control needed will vary depending on how bad the credit situation is. In the worst case scenario, the debtor has several accounts in third party collections and will have to settle everything and start fresh. Settlements are inexpensive relative to the original amount owed and can stop the carnage on a credit report in days.
The worst way to handle this same situation would be to declare bankruptcy. Whereas multiple settlements may begin to disappear from credit reports in a year or so, any form of bankruptcy will stay with the individual for seven to ten years. This type of blight on a person’s record will prevent them from being hired by certain employers (a list that grows longer every year,) and leave them with few options for financing any major purchases.
When accounts are still open, damage control requires diligent oversight of all debts. A chart of accounts should be developed and posted to an office wall. Following this, a clear plan of action must be carried out.
Take Action
Many people can solve debt problems soon after they begin with a few simple phone calls and some active participation. Once accounts have been mapped out and the chart set on the wall, the first step is communication. Try to contact a creditor as soon as it appears a payment will be late or missed. The company may choose to move a due date back for the individual or except a smaller amount for a specified period of time. If payments are already overdue, call them anyway; some communication is better than none.
The next step is to cease spending on any and all credit cards until they are all brought current. To accomplish this step, it may not be necessary to cut up the plastic, but taking them out of the wallet and placing them in storage may be helpful. Next contact any creditors who have recently increased an interest rate due to a late or missed payment. Plead an honest case with them, and ask to have the rate converted back to where it was.
If the company will not reduce the rate to its previous status, consider transferring the balance before it grows out of proportion. Take action quickly as even small balances with high interest rates will soon become a problem. One method of doing this is to open zero percent introductory offers and transfer high interest balances to them. Read the rules of the offer carefully to avoid getting stuck with another high interest, high fee card.
When all creditors have been contacted and a payment plan established, take pride in staying with the plan and eliminating excessive debts. Enjoy a reward for every card with a zero balance; just remember not to charge it!
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