If you're concerned about going into bankruptcy, then you may have already realized that your debt is out of control. As someone with heavy debts, it's important to look into ways to eliminate them before considering bankruptcy if you want to preserve your credit score. If you haven't yet missed a payment but worry that your debts are out of control, now's the time to act.
When you pay only the minimum required payment each month, you spend more time paying back your debts and you also spend more on interest. Not everyone ends up in this position willingly, but regardless of how you got there, it's time to reduce those debts as quickly as possible. How can you do that?
1. Communicate with the credit card provider
The first thing you can do is reach out to your lender. Talk about your situation and ask how they can help. Some may reduce your minimum monthly payments or give you a short deferment to catch up on your bills. Talk to each creditor independently and find out how they can help. Write down the changes they'll make for you and then move on to the next step.
2. Snowball your debts
A snowball is a reference to rolling payments from one debt to the next after each is paid. For example, if you have three credit cards at $2,500, $3,000 and $4,500, you'll start with minimum payments on two and a larger payment on a third. Once the first card is paid off, you roll the payment onto the next card, so you're paying what you paid on the third card as well as the minimum for the second. This helps you quickly pay off debt.
3. Transfer the balance
If you believe you can pay off the debts within a year, consider a transfer of debts onto a card with no interest rate. Remember, if you don't pay it off before the introductory rate, you may get hit with interest and fees later.