Jean Chatzky Quotations | Page 2

You fall a bit behind on a credit card bill, your interest rate soars, your minimum payment rises, and you start falling more and more behind every month. You don't see an end. But you don't want to file bankruptcy either. What you can do - and should do - is negotiate.

You need a clear, legitimate excuse for why you're behind [the bankruptcy], such as a layoff, divorce, or medical emergency. Be prepared to back up the circumstances with supporting documents. Anything you have to substantiate your story - including proof that you have, for instance, been actively looking for a new job - will help.

In most cases, if you've gotten to this point, you've already received a letter or phone message from your creditor with the name and extension of a representative. If you haven't, you can call the toll-free number on your bill, but keep in mind that the person who answers may not have the power to negotiate a settlement. Ask to speak to someone who is either a supervisor or in the settlement department, if the creditor has one (as many do).

After explaining why you're in trouble, ask the creditor if the company would be willing to accept a smaller amount. Start negotiations at about 30% of the total amount due, with the end goal of paying 50%.

Sometimes a creditor is willingto do this as a bargaining point - you give the creditor cash in hand, it gives you a positive listing on your credit report - even though you haven't paid the full amount. Get this agreement in writing.

One thing I want to make clear: You never want to hide from your debts. It doesn't work.

You'll get much better results by being upfront, answering creditors calls, and responding to their letters. Delaying the inevitable only digs a deeper hole.

No company can promise an end date, but if you have multiple debts, the first one should be settled within a year.

If you're filing bankruptcy, you will likely want to hire an attorney. But for debt settlement, a company is sufficient, or as I said, you can often do the legwork on your own.

You settled a debt instead of paying in full will stay on your credit report for as long as the individual accounts are reported, which is typically seven years from the date that the account was settled. Unlike with bankruptcy, there isn't a separate line on your credit report dedicated to debt settlement, so each account settled will be listed as a charge-off.