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Expert Q&A: Slash Credit Card Debt in 6 Steps

Erica Sandberg

July 18, 2011

QDear Erica,
I graduated with a nursing degree, and it took me a year to find a job. In that time, I paid most of my bills with my cards. I’m now working steadily and getting back on my feet, but some of my credit card bills went into collections. It’s never been my intention to be a deadbeat, but I had to get back on my feet again before I paid them off. I’m getting there, but it will still be a while. I’ve had offers to settle for much less, but never wanted to. I want to eventually pay it all in full. How do I proceed with this? Do I need a lawyer? I still don’t have a big bank account and don’t make a lot of money yet, despite long and hard hours of work. Like I said, I’m getting back on my feet. I’d really appreciate any advice. — Jillian

ADear Jillian,
Definition of a deadbeat, according to Miriam-Webster, online edition: one who persistently fails to pay personal debts or expenses. Synonyms: couch potato, lazybones, do-nothing, drone, idler, layabout, loafer, lotus-eater, slouch, slug, slugabed, sluggard.

You don’t seem to fit the characterization of a deadbeat! What you seem to be is a perfectly ethical woman who overused her credit cards during a period of unemployment and then allowed the resulting debt to go bad. That you’re determined to pay what you owe in full is a testimony to your integrity. Ask Erica

Here’s how you can pay your debts, sans lawyer:

1. Develop a short-term, debt-busting budget.
List all current expenses. Be comprehensive. A budget is far more than rent, food and car, so include everything from birthday cards to internet service and mani-pedis. Scratch out those that you do not truly need. Then, total your essentials and subtract them from your monthly income. The remaining sum is your debt repayment commitment.

2. List your collection debts.
You’ll know how much you owe on the letters from your creditors, but if you don’t have them, check your credit report. You can pull them online for free (once a year) at annualcreditreport.com.

3. Open a just-for-debt account.
If you don’t already have a savings account, open one now. This is where you will deposit the fixed contribution amount. Never go below that figure, but increase it when you have any extra cash.

4. Accumulate all or most of what you owe.
Having the full balance of the debt ready to go is best (since you’re not interested in negotiating a debt settlement), but saving 75 percent of the liability is fine too.

5. Contact the creditors and pay up.
If you have the total amount ready, write the collection agency. State that the enclosed check is for the debt they are holding (include the account number) and that cashing it constitutes payment in full. Send it certified mail, return receipt requested. If you don’t have the entire balance, send what you have and then specify when the next payments will be. Collection agencies aren’t in the business of extending credit and accepting incremental payments, but if the balance is large, chopping it into a few installments should be OK. Keep copies of all correspondence.

6. Check your reports.
When you’ve completed the repayment process, wait a month or so and pull your reports again to make sure the collectors have updated your file with a zero balance due.

After you’ve satisfied your debts, you can loosen up your restricted budget, but continue to save a portion of your paycheck. You never again want to lean on credit when times get tough. A lotus-eater? Not you, Jillian.