By Michael Rupured


University of Georgia

If you have more debt than you can handle, you’re not alone.
Last year, more than a million families filed for bankruptcy.
Many more sought help from credit counseling agencies.

To get out of debt, first look at your credit report. Georgia law
allows you to get two free credit reports each year from each of
the three major credit reporting agencies.

Credit report = your credit history

Your credit report is a record of your repayment history for the
past seven years. It shows how creditworthy you are and affects
how much you have to pay to borrow money.

Make sure your credit report is accurate and complete. If you
find errors, follow the directions provided with the report to
correct them. Check out any negatives: late payments, judgments,
wage garnishments, charge-offs.

If all your payments have been current for the past six to 12
months and you have no other negatives, it’s best to dig out of
debt on your own.

If you’re adding negatives to your report each month with late or
missed payments, though, you probably need help. Face-to-face
credit counseling is available in many communities. You can get
help on-line, too, or by telephone.

Credit counselors can help

Credit counselors can usually negotiate better terms with your
creditors and reduce the amount you owe. They can set up a
repayment plan that will usually require you to close all credit
accounts and stop charging anything until the debt is gone.

Your creditors will tell the reporting agencies you’re taking
part in a debt management plan. This usually isn’t as negative,
though, as continuing to miss or be late with payments.

If you work with a credit counselor, there are important
questions to ask, such as how much they charge?

Some agencies take the first month’s payment as a fee, which
means your creditors don’t get paid that month. This damages your
credit even further and adds late fees and finance charges.

Many agencies offer their services free or have very low fees. If
you pay the agency monthly, make sure you know which of your
debts the payment covers. Certain debts, such as automobile
loans, home mortgages and other secured debts, generally aren’t
included in debt management plans.

Know how often payments are sent to your creditors, too, and
whether you’ll get a regular statement showing how your payments
were disbursed.

Don’t create more debt to get out of debt

Beware of counselors who try to steer you into consolidation
loans. If debt is your problem, borrowing more is
NOT the answer.

Some people owe so much that even credit counselors can’t help.
Often this is because of divorce, unemployment or medical bills
not covered by insurance. These people may have no choice but
to file for bankruptcy.

Georgia has the fourth highest rate of personal bankruptcy in the
nation. One of every 44 Georgia households filed for bankruptcy
in 2002. In these cases, people who owe more than they can repay
go through the court system for debt relief.

Some people file Chapter 7 petitions. They’re allowed to keep
certain assets, with others sold to repay their debts.

Others file Chapter 13 and work with an attorney to develop a
budget. They have to pay all of their disposable income to the
courts for three to five years. The monthly payments are
distributed among the creditors. Georgia has the highest Chapter
13 rate in the nation.

However you do it, getting out of debt is a sound investment.
You’ll free up money you now commit to monthly debt payments and
eliminate finance charges. You’ll feel less stress, too, and be
more optimistic.

To learn more about becoming debt-free, contact a family and
consumer sciences agent through your county University of Georgia
Extension Service office.