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Dear Liz: I always had good credit until I lost my home in foreclosure and then I lost my job. I am working again but I went from a salary of $60,000 a year plus bonuses to a salary of $20,000. My credit is messed all and still I cannot pay my credit cards. What do you recommend for me to get back on track financially?

Answer: You can’t fix your credit until you fix your finances, and your first step is deciding what to do about your cards.

If your credit is “messed up” and your credit scores are low, you probably can’t consolidate this debt into a lower-cost loan—which is often the best option for people with good credit, since credit unions currently offer 3-year debt consolidation loans with rates under 10%.

A visit with a legitimate credit counselor (you can get referrals at www.nfcc.org) will determine whether you have enough income to pay off your cards over five years or so through a debt management plan, which typically lowers the interest rate you pay.

You also should visit a bankruptcy attorney to see whether filing for Chapter 7 liquidation is an option. If not, you may want to talk to the attorney about settling your debts for less than you owe.

Once you’ve visited both the credit counselor and the bankruptcy attorney, you’ll be able to make more informed decision.

After the debt is paid, erased or settled, you can begin to rebuild your credit. Until then, your efforts won’t come to much, since your inability to pay your credit cards will continue to erode your credit scores.

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Dear Liz,
I’m in a similar financial boat regarding my credit card debt. I have a bad debt to credit ratio and it is getting worse. I’ve been working a regular job, have not been late on any payments and pay more than the minimum each time. One of my banks said they were trying to “help me” and the bank raised my APR and cut my credit limit on two cards. I had a Circuit City credit card, and when they closed it down they transferred the balances to another card, but, the bank cancelled mine. Now my credit line was down about $3,000. Another bank allegedly checked my credit report and raised my 7.24% APR to 29.99%. I had a high debt on it, but cancelled it because I couldn’t afford to pay the higher APR. Then they saw my Credit Scores go down, and are closing another Credit Card. So my credit is shot. I spoke to a Debt Counselor and after reviewing my finances I was told I would only qualify for Debt Settlement. I have not yet spoken to an attorney about this. My job is not that secure, and I’m in my mid 50′s, so I am concerned about my future job prospects. I’ve heard that declaring bankruptcy could hurt my job hunting prospects. I’m considering the bankruptcy route. Since I have not been late on any payments, I’m not sure if I’d qualify for Chapter 7. If I have to pay off part the debt in Chapter 11, than would you recommend, Debt Settlement.

I’d appreciate your feedback.



Jeff, I’d make sure you talk to a legitimate credit counselor (one affiliated with http://www.nfcc.org) AND a bankruptcy attorney so you know your options. The term “debt counselor” really means nothing and they could just be pushing debt settlement as a one-size-fits-all solution.


I really enjoyed this and you give some very good advice. Excelent article, Thank you for sharing.