Handling Credit Problems

Almost everyone uses some form of credit. Credit allows us to get goods and services by paying for them later. But credit can cause money problems if not managed wisely.

Signs of Credit Problems

You may be having money problems if:

• You pay only the lowest amount due each month.
• You pay bills after the due date.
• You take out new loans or charge on credit cards to pay for basic living expenses.
• You often take out pay day loans to cover expenses or pay bills.
• You skip payments.
• You often get past due notices.
• You use savings to pay bills.
• Bills are turned over to a collection office.
• You post-date checks.
• You are turned down for credit because you have too many creditors.

How Much Credit Is Too Much?

Avoid getting over your head in bills. Always know how much you can afford to commit to credit payments. A common guide is to limit monthly credit payments (minus mortgage or rent) to 15 percent of your take-home pay.

A safer guide is to not have more than 1/3 of extra income (minus mortgage or rent, utilities, food, carfare and insurance) go to credit bills such as credit cards or car payments.

What to Do if You Can't Pay Your Bills

Getting out of debt is not easy. But it can be done. Your goal should be to set up a plan that can really work for you. Here are some steps to think about:

1. Make a budget. Figure out how much you can realistically afford to pay each creditor.

2. Talk with your creditors. Tell them your problem and your plan to repay. make certain to follow through with the repayment plan. Do not try to avoid creditors.

3. Taking out a large loan to pay off a lot of small loans may be the answer, but it may cost more in the long run and may take a long time to repay.

4. As a last resort, you may have to think about taking legal action. The Wage Earner's Plan (Chapter 13) allows you to pay back debts through the courts. Straight bankruptcy (Chapter 10) cancels out almost all debt.

Think carefully before taking legal action. This decision will affect you and your family for a long time in a bad way.

Getting Help for Money Problems

If you are stressed about money problems the wisest thing to do is to get help from a financial counselor. A good counselor will help you to make a plan to get out of debt. A counselor will also give you ideas on how to relieve financial stress for you and your family and guide you in making long range plans for the future. There are many not-for-profit agencies that can help. Call 1-800-388-CCCS to find a qualified budget-counseling agency in your area. They will help you to decide the best way to handle credit problems.

Written by Rhonda Hardy, Extension Educator, Consumer and Family Economics University of Illinois, Extension Chicago Extension Center.

Edited by Katherine J. Reuter, Educator Consumer and Family Economics Countryside Extension Center.

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