6 Tips On How To Survive Too Much Debt And Not Enough Credit


This article is a guest post from Steve Sildon, Managing Editor for Credit Card Assist and frequent contributor in the blogesphere, writing about personal finance, credit cards and other credit-related topics.

The number of consumers with poor credit is increasing rapidly. Between the mortgage crisis and the typical middle-income credit card holder charging more than they can reasonably afford to repay – the growing trend of low credit scores now includes about one third of the nation’s population – or 110 million Americans.

Credit card issuers have begun tightening their lending practices and exercising their contractual rights to change the cards’ terms and conditions of their cardholder agreements at any given time and for any reason they deem necessary. People who haven’t made even a single late payment on their credit cards are finding themselves with lower credit limits and much higher interest rates. Some people have even said that their payment due dates had been moved up to earlier in the month and their grace periods, which allow cardholders to make payments without paying interest, had been shortened. Virtually everyone has felt the effect of the credit crisis and lenders sweeping efforts to maintain profitability with higher fees and
interest rates despite an increasing number of people getting behind on their payments. But card issuers will have new rules regarding interest rate hikes and changing card agreement terms that will take effect in July of 2010, providing some relief to cardholders who have felt the impact of these draconian policies.

You don’t have to throw in the towel though. If you find yourself struggling with debt, credit card debt in particular, during the credit crunch, now is the time to start making changes to put yourself in a better situation financially over the long haul. Believe it or not, changing your behavior now while the fire is “hot” is one of the best financial opportunities that you might ever have.

Here are 6 tips on how to survive too much debt and not enough credit:

1. Don’t Run Away from the Problem: The worst thing that you can
do is ignore creditors if they’re calling you for payment. As a matter of fact, don’t let this happen. Get out in front of the problem if you can see it coming. You’ll get much further by explaining your situation to your creditors ahead of time, asking for flexible payment arrangements or additional time to make a payment than you will by hiding from the calls. Your creditors are more likely to be flexible if they are informed of your situation before its overdue.

2. Formulate a Plan: Before contacting your creditors, you need to put a repayment plan together so you have a solid understanding of what you can and cannot afford to repay every month. In doing so, ask yourself the following questions:

  • What is my total monthly household income that I can count on
  • What are my total monthly fixed payments, including mortgage or rent, car loans, utilities etc.
  • What are my variable expenses that might include groceries, gas, entertainment,
    clothes, etc.

Getting specific about your total income and expenses to give you clarity about what you can comfortably repay your creditors is absolutely vital. Above all, do not overpromise your creditors. Only commit to what you know you can afford. Failing to follow through with a creditor on a repayment plan can cost you dearly.

3. Making Small Payments is Better than Nothing: The simple fact of the matter is that many people can’t afford to pay anything on their outstanding credit card bills right now. Even making very small payments of $5 to $10 each month might be enough to placate your debt holders, at least temporarily. You can ask that in exchange for these small incremental payments that they hold off on sending your account to collections while you try to get back on your feet. They may kick and scream about it the whole time, but it’s better to be making smaller payments rather than none at all.

4. Stop Taking on New Debt: It may sound like an oversimplification, but this is where the rubber hits the road. For people who have always relied on credit cards even for unexpected or emergency expenses, this can be a difficult habit to break but is crucial for success in digging out of your situation. Make a commitment to yourself and stop taking on debt by charging on your credit cards. Period.

5. Start Making Lifestyle Changes Today: You can start right away to make the lifestyle changes that will benefit you immensely in the long term. You can start immediately by trimming some of those disposable discretionary expenses. For example, I have implemented a temporary “no-fly” zone on the following items:

  • Convenience Stores
  • Drive-Thru’s
  • Mochas and Lattes

Cutting out these discretionary items might sound obvious to some, horrifying to others, but if left unchecked, they can add up very quickly. Cutting out just these 3 categories of spending alone saved me $114 in the first month. Cutting out the “Half-Caf, Decaf” lattes sounded daunting at first, but mourning the loss quickly dissipated after seeing the difference that it made to my bottom line.

6. Increase Your Income: I know, I know – it’s easier said than done, but increasing your income is another option that will certainly help to alleviate the financial pressure that you might be feeling right now. One of the easiest ways to increase your income is to consider consulting or freelancing from home at nights and on the weekends when you’re not at your regular job. It might be surprising to hear, but everyone has expertise or passion in something. No matter what your profession, there are plenty of opportunities to freelance and take advantage of your particular passion or unique area of expertise. You can easily find work on any of the dozens of freelance web sites available online.

Rest assured in knowing that you aren’t alone. Right now, many people are struggling with not enough credit and far too many debts. Thankfully, many creditors have begun offering assistance and more understanding than they have in the past. Creditors realize that it’s in their best interest to keep you from defaulting, even if it means being a bit more flexible with the payment agreement temporarily.

My 6 step plan can go a long way in helping to relieve the problem that so many of us are now facing. By dealing with the problem head on, formulating a plan, making small payments and lifestyle changes, increasing your income if possible, and above all, stopping taking on new debt, there is hope for you and the rest of us for a new day and, hopefully, some light at the end of the tunnel.

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