Karen Gross likens excessive debt to a bad hangover. “The last thing you want to do is try to relieve your financial headache with a solution that will be worse than the hangover itself,” says Gross, the president of the Coalition for Consumer Bankruptcy Debtor Education (http://www.debtoreducation.org). Quick fixes rarely work, according to Gross, who offers the following four-step formula for getting on track.
1. Hold your horses, stay calm, and don’t rush into any impulsive arrangements. “Don’t panic,” Gross advises. “It’s essential to pause, take a deep breath, and look carefully at possible solutions.”
2. Examine your situation. While your debt problem may be serious and appear urgent, first get an accurate sense of the extent of your situation. Gross says: “Lots of organizations offer help, but don’t take the first solution that comes along. Take time to assess, compare, and contrast multiple solutions.”
3. List your options, including the pros and cons of each. For example, while a home-equity loan may seem like an appropriate solution, it’s not always the best course of action because it can put your home at risk.
4. Pay at least the minimum amounts due on all of your credit cards. This last step is critical because of the “universal default” clause, which permits a credit card company to raise your interest rate if you’re late on another company’s credit card or any other outstanding loan. Lenders argue that it’s logical to raise rates for a consumer who has shown evidence of becoming a greater risk. (Scott's note here: Not all credit card companies will raise your APRs if you've been bad on another bank card.)
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