Our goal here at Credible Operations, Inc., NMLS number 1681276, referred to as âCredibleâ below, is to give you the tools and confidence you need to improve your finances. Although we promote the products of our partner lenders who pay us for our services, all opinions are ours.
Dear credible money coach,
I owe $ 9,000 on a truck and about $ 5,500 on credit cards and small loans. I also have medical bills probably totaling around $ 5,000. I sent money here and there to try to pay all these bills. How do I go about establishing a payment plan? My fear is that I will never pay it. How do I get out of this mess? What are the best means or companies to turn to? -Gary
Hi Gary and thank you for your question.
It can reassure you that you are not the only one struggling with debt – we get questions every week from people exactly like you.
Household debt has been a big problem in America for some time, and the pandemic has not helped the problem improve. In fact, consumer debt hit a new high last year, according to Experian. The average credit card balance is just over $ 5,300 and the average car loan balance is almost $ 20,000, according to credit bureau data.
Based on the numbers you shared, your total non-housing debt is around $ 19,500. You are absolutely correct that inconsistent payments or only minimum payments will make it difficult to pay off your debt. But with the right plan, you can definitely tackle it. So I commend you for asking for help.
Let’s start by giving you some ideas of where you can get help crafting a personalized debt reduction plan.
Where to get help making a plan
Reputable nonprofit credit counselors can help you make a plan to manage your finances, create a budget, and make a plan to pay off your debt. They can help you decide if a debt management plan is right for you, and DMPs aren’t for everyone.
A successful credit counseling agency will provide you with free information about its services and how they work. This will not require you to make any payment or even ask you to share your personal information just to find out how the agency works. Even if it is a non-profit organization, a credit counselor may have a fee, but they must clearly explain their fees in advance.
Be careful when looking for a credit counseling agency. Unfortunately, many people and businesses that claim to help you get rid of your debt are only doing it to make money – and they might even make your situation worse. Stay away from these.
Begin your search for a reputable credit counselor with either the United States Department of Justice’s list of approved credit counseling agencies or the National Credit Counseling Federation.
Both the DOJ and the NFCC have searchable databases that can help you identify certain credit counselors near you. You may also find reputable credit counselors through a local university, military base, local housing authority, credit union, or your local cooperative extension service.
Before hiring a credit counselor, check with your state’s attorney general’s office, the Better Business Bureau, or your local consumer protection agency to see if the counseling company has any complaints against them.
Flee if a consulting agency …
- Requires you to pay in advance
- Pushes you towards a debt management plan without first looking at your big financial picture
- Educational material costs
- Is not transparent about the fees it charges
- Ensures your debts will be canceled
- Makes you feel pressured or uncomfortable in any way
Tips to get by on your own
If you decide credit counseling isn’t for you – or if you know it will take some time to find the right advisor and you want to get started right away on your own – here are some steps you can take. follow to start paying that heap of debt.
- Get a clear picture of your total debt. Knowledge is power, and knowing exactly – to the nearest dollar – how much debt you have can help you make a plan to pay it off.
- Consider the avalanche method. Using this strategy, you will make minimum payments on all of your debts and then put additional amounts into the account with the highest interest rate, possibly your credit cards. This approach minimizes the amount of interest you pay to get out of debt.
- Consider the snowball method. With this strategy, you again make minimum payments on all of your debts, but invest in paying off the smallest debt first – your medical bills. When these are paid, you move on to the next smallest.
- Turn it into cheaper debt. Credit card debt can get very expensive. And if your loans are a few years old, chances are they are at a higher interest rate than the current average for personal loans. You may be able to bundle high cost credit card debt and higher interest rate loans into one lower interest personal loan.
- Communicate with your creditors. Bill collectors aren’t famous for their compassion, but that said, many creditors are realizing that the pandemic has hit many people in the wallet badly. It may be worth contacting your creditors to see if you can negotiate a lower interest rate or get them to agree to settle the debt for less than the total amount you owe (this is especially common with medical debts. ). Just be aware that this course could hurt your credit score.
Need CredibleÂ® advice on a money issue? Email our credible money coaches at [email protected]. A Money Coach could answer your question in a future column.
This article is intended for general informational and entertainment purposes. The use of this website does not create a professional-client relationship. Any information found on or derived from this website should not be substituted for and should not be construed as legal, tax, real estate, financial, risk management or other advice. If you require such advice, please consult a licensed or competent professional before taking any action.
About the Author: Dan Roccato is a Clinical Professor of Finance, School of Business, University of San Diego, Credible Money Coach personal finance expert, published author and entrepreneur. He has held leadership positions at Merrill Lynch and Morgan Stanley. He is a recognized expert in personal finance, global securities services and corporate stock options. You can find it on LinkedIn.