If you're in debt, well, you are not a unique and beautiful snowflake. Whether because, as the Republicans tell us, our parents just bought us our X-Men trading cards instead of making us save up for them or, as the Occupiers have it, wages have been pushed so low relative to the cost of living that just getting by now necessitates taking on debt, Americans are in the hole—$2.5 trillion of consumer debt in the hole, according to the Federal Reserve.
Let's skip the requisite condescending paragraph chiding you for taking out student loans to get a bachelor's in liberal arts from Sarah Lawrence, shall we? Your high-priced critical-thinking skills can be put to better use figuring out how to get the monkey off your back.
The solution—or a step toward it, at least—might be as simple as asking for a break. Melody Thompson is the executive director of Financial Beginnings, a local nonprofit that provides financial education to youth and young adults. She says struggling borrowers' first step should be contacting their lenders and telling them they're having trouble making payments. Lenders oftentimes will cut a deal lowering the monthly payment, deferring payments to the end of the loan period or waiving fees in return for partial payment of the principal.
"Call them before there's a problem," says Thompson, who worked previously in collections. "Find out if there are any options, and go about it that way instead of avoiding the problem.â
Student-loan lenders, Thompson notes, are especially willing to grant borrowers accommodations, including reducing the monthly payment to match the borrower's income. That might be because student loans may not be included in personal bankruptcy. "It's a debt that can't be forgiven, so they work with you," she says.
For borrowers with multiple lines of credit, Thompson suggests strategically paying down the bills in declining order of interest rate. And, of course, she counsels against making only the minimum payment on credit-card bills. If you charge a $1,000 laptop on a card with 18-percent interest and make only the minimum payment each month, Thompson points out, it'll take 19 years to pay off—and the computer will end up costing $3,000. "A lot of people," she says, "don't realize that the minimum payment is just thatâitâs the minimum.â
If your situation is dire, a number of debt-relief options are available, from credit counseling to (in the most serious cases) personal bankruptcy. So-called debt-settlement programs, those heavily advertised offers where companies claim to be able to negotiate away your debt, are among these choices, but reading the Federal Trade Commission's guidelines on them is like reading An American Semitic-Looking Girl's Guide to Iran—don't go there. Not only are these debt-settlement outfits frequently sketchy, but their settlement of your debt can come at the cost of your credit rating. "You have to really make sure what it does to your credit," Thompson warns. A less risky option, if you're in over your head, is to contact credit-counseling organizations, which are often operated by public, nonprofit institutions like colleges and credit unions.
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