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Start with your local consumer credit counseling agency
Look in your local Yellow Pages for consumer credit counseling. You’re most likely to find several listings. I went through the exercise where I live and found more than 50 credit counseling agencies or companies. Banks, credit card companies and civic organizations fund the best ones so they are non-profits and either offer their services free or for very low fees. If you live in an area where there is no credit counseling agency, you can easily find companies online that offer it. However, be sure to do your homework and check out these companies carefully as some of them are basically scams.
Talk with your bank
You may also be able to find debt relief assistance at your bank or credit union in the form of a debt consolidation loan. If you owe $10,000 or more you may have to get a second mortgage or refinance your current mortgage. Of course, to do this you will need to have enough equity in your house that you could borrow a sufficient amount of money to clear your debts.
Check with your employer
If you have a 401(k) or some type of IRA, you may be able to borrow from it to get debt relief. Most employers have 401(k)s that permit you to borrow up to $50,000 or half of what you have in your fund. You would have five years to pay back the money and you will have to pay interest, just as if you had borrowed the money from a bank but surprise! You’re paying the interest to yourself. How good would that be?
Contact your creditors
There are two options for dealing with creditors. First, you could ask to have your debt restructured. You might be able to negotiate a reduction in your interest rates or even a grace period of several months during which time you wouldn’t have to make even your minimum monthly payments. This would give you time to reorganize your debts and develop a plan for paying them off.
The second option is called debt settlement. This is where you offer to settle your debts with lump sum payments but for less than you actually owe. For example, you might offer to settle a $5,000 debt for $2,500 or even $2,000. However, for this to work it must have been at least six months since you made any payments on your unsecured debts. And you would need to have the cash in hand to pay the settlements you negotiate.
Contact a professional debt settlement company
If you don’t think of yourself as a shrewd negotiator or if you don’t have the cash that would be required to settle your debts, you might contract with a professional debt settlement company. It would negotiate settlements with your creditors for you. Then instead of paying them each month, you would pay the debt settlement company.
Trustworthy, and ethical debt settlement companies put the money you send them into FDIC-insured trust accounts and then use it to pay your creditors – once they all agree to their settlements. Ethical debt settlement companies charge no upfront fees and you pay nothing until it has settled all your debts and you sign off on a payment plan.