Sheyna Steiner
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Intense panic accompanied by stifled screams and helpless flailing is a monthly ritual for people drowning in debt.
As a cliché, it is, unfortunately, all too familiar. The Federal Reserve announced that as of June 2006, Americans are carrying more than $810 billion in revolving debt. That does not include mortgages and loans for such things as autos, mobile homes, education, boats, trailers or vacations.
But it's never too late to turn things around. First and foremost, be committed, says Howard Dvorkin, founder of Consolidated Credit Counseling Services Inc. and author of "Credit Hell: How to Dig Out of Debt."
"People have to want to get out of debt. They aren't going to get out of debt just to get out of debt, they have to want it."
1. Establish your bearings.
Intense panic accompanied by stifled screams and helpless flailing is a monthly ritual for people drowning in debt.
As a cliché, it is, unfortunately, all too familiar. The Federal Reserve announced that as of June 2006, Americans are carrying more than $810 billion in revolving debt. That does not include mortgages and loans for such things as autos, mobile homes, education, boats, trailers or vacations.
But it's never too late to turn things around. First and foremost, be committed, says Howard Dvorkin, founder of Consolidated Credit Counseling Services Inc. and author of "Credit Hell: How to Dig Out of Debt."
"People have to want to get out of debt. They aren't going to get out of debt just to get out of debt, they have to want it."
1. Establish your bearings.
Once you're absolutely, unconditionally prepared to do whatever it takes to pull your credit rating out of a nosedive, you're ready for stage one.
"Take a step back and evaluate the situation," says Emily Davidson, corporate communications director for Credit.com. "It's very common for people to skip over this and go straight into crisis mode. It's really difficult for people to face the problems that they might be having."
The best way to assess the condition of your finances is by pulling your credit reports. This can be accomplished three ways.
Go to Annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free. Call (877) 322-8228. Complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You are entitled to one free credit report a year from each credit bureau -- Equifax, TransUnion and Experian. As long as the reports are ordered from the centralized agency, they can be ordered all at once or at different times of the year.
Learn how to read your report. It can be illuminating. According to Dvorkin, "People tend to underestimate rather than overestimate -- probably about 20 percent lower than what they actually owe. The average debt is $9,000: 20 percent of $9,000 is $1,800 -- so that is a pretty significant fluctuation for most of us."
"Take a step back and evaluate the situation," says Emily Davidson, corporate communications director for Credit.com. "It's very common for people to skip over this and go straight into crisis mode. It's really difficult for people to face the problems that they might be having."
The best way to assess the condition of your finances is by pulling your credit reports. This can be accomplished three ways.
Go to Annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free. Call (877) 322-8228. Complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You are entitled to one free credit report a year from each credit bureau -- Equifax, TransUnion and Experian. As long as the reports are ordered from the centralized agency, they can be ordered all at once or at different times of the year.
Learn how to read your report. It can be illuminating. According to Dvorkin, "People tend to underestimate rather than overestimate -- probably about 20 percent lower than what they actually owe. The average debt is $9,000: 20 percent of $9,000 is $1,800 -- so that is a pretty significant fluctuation for most of us."
Help for This Step
· How to Read Your Reports
· How to Fix Errors on Your Reports
· Use the Debt Load Analyzer
· How to Read Your Reports
· How to Fix Errors on Your Reports
· Use the Debt Load Analyzer
2. Chart your path.
How far behind in your payments you are can drastically alter your plan of action. "If you're just in the beginning of having this financial crisis and beginning to fall behind, it's really best to work on your own to try to recover," Davidson says.
On the other hand, your options are going to be different with one or two 120-day-late payments on your credit report. "If you let something go all the way to a charge-off -- where it's placed with a collection agency -- that will be seriously negative for the full seven years. It is known as 'seriously derogatory,'" says Maxine Sweet, vice president of public affairs for Experian and author of the consumer credit advice column "Ask Max."
A severely damaged report does buy you some wiggle room. "You can negotiate with creditors, or work with a debt-negotiation company or debt-counseling company," Davidson says. "The potential downside is that there could be some damage associated with those programs -- as far as how the lenders choose to report your repayments. But if you're already at that stage, there's not a whole lot that can happen."
Obviously, the hope is that you've caught yourself before that point. Even if you haven't, you will be able to recover with some work and the passage of time.
"People have a lot of options," Dvorkin says. "Unfortunately, they don't realize all their options. Bankruptcy isn't the first option; it's the last option. The first is to juggle the household budget."
On the other hand, your options are going to be different with one or two 120-day-late payments on your credit report. "If you let something go all the way to a charge-off -- where it's placed with a collection agency -- that will be seriously negative for the full seven years. It is known as 'seriously derogatory,'" says Maxine Sweet, vice president of public affairs for Experian and author of the consumer credit advice column "Ask Max."
A severely damaged report does buy you some wiggle room. "You can negotiate with creditors, or work with a debt-negotiation company or debt-counseling company," Davidson says. "The potential downside is that there could be some damage associated with those programs -- as far as how the lenders choose to report your repayments. But if you're already at that stage, there's not a whole lot that can happen."
Obviously, the hope is that you've caught yourself before that point. Even if you haven't, you will be able to recover with some work and the passage of time.
"People have a lot of options," Dvorkin says. "Unfortunately, they don't realize all their options. Bankruptcy isn't the first option; it's the last option. The first is to juggle the household budget."
3. Put the plan into action -- the dreaded "B" word.
Call it a budget, spending plan or resource allocation; it all comes down to the same thing: "Stop spending," says Sweet. "You can't say 'I'm in over my head' and keep living the same lifestyle. You have got to figure out what you can cut out of your life."
This is the mantra of credit experts. "Stop spending; use cash instead of a credit card," Dvorkin says. "Most people's budgets are 15 to 20 percent fat. You don't need a $4 latte at Starbucks every day. People can do without certain things -- do you need 200 satellite channels? Can you get away with 100?"
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This is the mantra of credit experts. "Stop spending; use cash instead of a credit card," Dvorkin says. "Most people's budgets are 15 to 20 percent fat. You don't need a $4 latte at Starbucks every day. People can do without certain things -- do you need 200 satellite channels? Can you get away with 100?"
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