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Solving a Major Credit Problem

  • Personal bankruptcies topped 1 million for the first time ever in 1996.
  • Credit card debt is the fastest growing form of consumer debt. As many as 60 million U.S. households have credit card debt of more than $6,000, costing them more than $1,000 in interest and fees annually — as a group these consumers are paying $60 billion a year in interest.
  • The percentage of people in the United States who were behind on credit card payments at the end of 1996 was the highest ever recorded.

Anytime you borrow money or arrange to make payments for goods or services over time, you are using credit. To be beneficial, credit must be used in moderation. Most families need to use credit in order to purchase expensive necessities such as a house or a car. Many families need to use credit to meet unexpected family emergencies. However, it is generally best not to use credit to make nonessential purchases. Those purchases should be made from savings or delayed until the purchase price has been saved.

Many of the millions of families paying substantial interest on their credit cards were unable to avoid their credit problem. However, many other families could have avoided their problems simply be using credit in moderation. If you want assistance in wisely using credit, you can call your local University of Maryland Cooperative Extension Office.

If your credit problems have already gotten out of control, there are a number of steps you can take. You can contact your creditors and ask them to work with you on a repayment plan, you can work with a credit counseling service that will put you on a debt management plan, you can take out a debt consolidation loan, or you can file for bankruptcy. Each of these steps is an appropriate one to take under some circumstances. Generally you should consider these options in the order listed. Once you have gathered information about each option, you will then be ready to decide the best steps to take to address your credit problem.

If you have already attempted to work with your creditors and your credit problems are continuing, it is time to talk to a credit counseling service.

Credit Counseling Services

Several non-profit organizations offer free help resolving debt problems. These organizations work with you to come up with a budget and a debt repayment plan, then they contact your creditors and arrange new terms if possible.

The advantage of using a credit counseling service instead of contacting creditors yourself is that they already have a relationship with thousands of creditors, and they will work out the details for you. In addition, you often have to make only one payment each month to the counseling service instead of writing many checks as you would if you did it yourself.

Creditors allow different types of arrangements under debt repayment plans. Some may reduce the interest you pay until the loan is paid off. Others may lower your minimum monthly payment. This allows you to pay less while keeping your account in good standing so you will not be compounding your debt by adding late fees each month.

Using a credit counseling service will not prevent delinquent accounts from becoming part of your credit history. Although the credit counseling service does not report to any credit reporting agencies, your creditors may report any payments that have been late or missed, or may report that your account is in counseling. Credit services also offer advice and education that may help prevent you from having credit problems in the future.

Two non-profit credit counseling agencies that offer help for debtors who are having trouble are: Consumer Credit Counseling Service: 1-800-642-2227 (or check the white pages of your phone book for the office nearest you.) National Credit Counseling Service: 1-800-388-2227.

Keep in mind that these non-profit organizations differ from credit repair companies. You should never pay an individual or a company to repair your damaged credit rating. If your credit rating has been damaged by late or non-payments, only time and repayment of your debts can repair it. If your credit report contains an error, you can repair it yourself.

Debt Consolidation Loans

If a consumer credit counseling service can not help, you might want to consider a debt consolidation loan. A second mortgage or home equity line of credit might carry a tax advantage you don't get with credit card interest. However, you use your house as collateral and if you can't make the payments, you could lose your house.

Debt consolidation loans must be considered very carefully. These loans can be expensive. Home equity loans usually include closing costs and you still have to pay interest, even if it is all or partially tax deductible. Other consolidation loans may carry a higher interest rate than the debts you are paying off. You might think you're getting a better deal because you are making one payment instead of many, or because the monthly payment on the consolidation loan is less than the combined payments on the bills you were paying off. However, you probably will make that lower payment over a longer period of time than the life of your other debts, and by the time you repay the consolidation loan, you will probably have paid substantially more than your original debt.


Record numbers of consumers are filing for bankruptcy. For some people that is the best step to take. Although you may lose some of your assets and you may be viewed as a serious credit risk for a number of years, bankruptcy is designed to allow people to get a fresh start. If the other options you have considered will not resolve your problem, you might need to consider this option. Credit counseling services or your local cooperative extension office can provide you with some basic information about bankruptcy, but eventually you will need to talk to a lawyer who is a bankruptcy specialist if you want to consider fully this option.

The Future

Once you have resolved your current credit problem, you will have to work hard to make sure you avoid credit problems in the future. Develop a budget and stick to it. Save money for emergencies. Don't use credit cards impulsively. And if you find yourself becoming overburdened, try to remedy the situation right away before your credit problem mushrooms.

Maryland Attorney General's Consumer Protection Division
Consumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free


Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
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