Pinpointing the exact moment you got over your head in debt may be tricky. But if you suspect you're never going to pay off your loans without a drastic change in circ*mstances, then you are likely stuck in a bad spot.
You may need to seek outside help, and that means being careful to avoid shady companies that promise to make you debt-free quickly and painlessly. Consider tapping the capabilities of these organizations to do a financial turnaround.
1. Non-Profit Credit Counseling Agencies
If you're struggling and unsure about your financial future, a reputable non-profit credit counseling agency may be able to help. Visit the National Foundation for Credit Counseling (NFCC) website to find a NFCC member agency licensed in your state. There are local, regional, and national agencies that offer face-to-face, telephone, and online counseling.
Generally, credit counselors at non-profit agencies develop a debt management plan and support you in its implementation. You give them a list of your obligations (outstanding balances, monthly payments, interest rates, late payment amounts, etc.). They negotiate with lenders on your behalf to reduce interest rates and waive penalties; otherwise, you may continue to make extremely slow or negligible progress in reducing balances as much of your money goes to fees and interest charges.
At the same time, they should work with you to develop a budget that includes making regular payments to eliminate debt over time, often three to five years. This can mean making monthly payments to the agency, who then disburse funds to creditors, as well as receiving guidance on developing better money habits to avoid future debt.
Note that even though services are provided by non-profit agencies, there are upfront fees for plan set-up along with monthly fees. Review proposals to make sure that these expenses won't exceed your savings associated with the debt management plan. And get a signed agreement before you move forward.
2. Federal Trade Commission (FTC)
The FTC has valuable tips on managing credit and dealing with debt overload at its consumer website. For example, you can learn about vetting a credit counseling agency with the Attorney General's office in your state.
Plus, the difference between a debt management plan and a debt settlement plan is explained. Briefly, debt management involves a plan to pay off debt in a reasonable manner; debt settlement requires you to default on loans so that the debt-help organization can then attempt to negotiate payment of pennies on dollars owed. Creditors may refuse to deal with the debt settlement firm, demanding full payment plus late fees. As a result, this approach often worsens your situation.
Also at the FTC site, you can access a budget worksheet. Complete the form to help you see where you might eliminate expenses and accelerate paying down debt.
3. Credit Reporting Agencies
Your local credit reporting agency, along with national ones (Equifax, Experian, Trans Union), can be allies in making sure your credit information is accurate.
Correcting errors may help improve your credit score. As a result, you may be able to negotiate lower interest rates and insurance premiums, leaving you with more money to apply to loan balances.
The idea here is not to wrangle removal of negative-but-true items but to remedy any problems. Start by ordering and reviewing your reports. Then deal with inaccuracies through communications with the reporting agency and information provider.
4. Creditors
Going to your creditors may seem like an odd way to get out of debt. But you may be able to negotiate lower interest rates and get fees waived directly, rather than through a third-party agency. Be prepared when you make calls to discuss possibilities (such as proposing a reasonable interest rate) based on current offers for which you qualify.
If you decide to take this approach, make sure that you can meet the requirements of a revised payment schedule. Creditors may be lenient with those who demonstrate earnestness to repay debts but show less mercy to those who renege repeatedly on agreements.
5. StudentLoans.gov
The Student Loans website run by the federal government offers a wealth of information on ways to manage your debt. You can learn how to avoid default, get your loans forgiven through public service or cancelled through other methods, and consolidate your federal education loans.
Loan consolidation and income-based repayment plans may be useful if you want to lower your monthly payments, although you may pay more interest over the life of your loan.
6. Private Student Loan Consolidators
Consolidators may be able to help you manage debt, if you have multiple private student loans. For example, Wells Fargo offers consolidation of private student loans and the Student Loan Network provides resources for consumers looking for this service.
Through consolidation, you eliminate the need to deal with multiple organizations. You may be able to save by lowering your interest rate or getting a fixed rate, rather than a variable one.
Even if you are not able to get a better rate, you may be able to lower your monthly payments so that you are better able to handle debt obligations. Like federal student loan consolidation, this approach may result in higher interest charges over the life of the loan (by extending the term) but could provide short-term relief.
7. National Institutes of Health
Those with doctoral degrees in a health profession may be eligible to receive loan forgiveness of up to $35,000 per year if they work in medical research after graduation. Check out the Loan Repayment Program (LPR) on the National Institutes of Health website for details.
8. The United States Department of Justice
The Department of Justice maintains a list of approved debtor education providers and credit counseling agencies on the United States Trustee Program & Bankruptcy section of its website. You can also find information on avoiding foreclosure through this site.
Much of this information is focused on bankruptcy but could be useful in understanding processes for dealing with debt and avoiding scams relating to getting out of debt.
Have you worked with any of these organizations to deal with debt? Or have you chosen a different path? Tell us what worked for you in the comments.
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