How to Manage Debt While Out of Work

If you are in a situation where your cash flow will be impacted dramatically, such as being out of work, there are several things you should do especially if you are carrying large credit card balances and know that you will be going delinquent:

1. Stop using your credit cards immediately, except for one that you will need in case of emergency.

2. Contact the remaining credit card companies to let them know your situation and that you will need some relief from your payments due to your employment situation. In the current economy, there are thousands of people defaulting on their credit cards and going bankrupt. When you show that you want to do the right thing and work with the issuer to come up with a solution to your problem, the issuer generally will do all that they can to help you.

3. Most likely, the creditor will suggest that you work with a local credit counseling firm, which is in their interest because those companies receive a portion of their fees on an annual basis from the issuers, along with whatever fee you would be paying them for their service. Issuers will not be helpful if you ask them for a settlement. They generally do not do this until you are severely delinquent and they have exhausted other resources, such as consumer credit counseling.

4. If you go with a credit counseling firm, generally you will be given very specific guidelines in terms of what the creditors will accept for minimum payments, and for the term of the arrangement. The payments will be lower because the issuer will drop the interest rate for a period of time on the account, but not the principal. Be advised that even though your payments will be smaller, and for a longer period of time, you will eventually wind up paying back all of the debt that you originally owed to the credit card issuer.

5. You will make one payment a month to the credit counseling firm, and they will disburse funds to the appropriate credit card issuers on your behalf, minus their fee. Be advised that they will be controlling your funds, and you should check out the counseling firm carefully to ensure that they have a good reputation and have not been involved in any type consumer fraud. One question to ask them is how many times they have changed their name. It is a big red flag if they have changed it numerous times.

The important thing is to get in front of your debt problem. Don’t wait until it overwhelms you. By that time your choices become more limited, you will most likely be recieving numerous collection calls, and maybe even threatened with lawsuits.

You are more in control than you might imagine if you start early, recognize the problem and deal with it.