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Holiday debt? If it's only part of the puzzle, consider Chapter 7

According to dailyfinance.com, more than half of all American parents were planning to take on at least some holiday debt in order to buy presents for their children, and its likely you did, too. Consumer credit card debt in the U.S. totals almost $800 billion -- second only to student loans in the total held by Americans.

For some people, however, holiday debt is only a symptom of a much larger problem. A spokesperson for one credit counseling center said she’s seen people come in with credit card balances of $50,000 to $80,000.  "People often come to us too late in the process,” she said, “after their debt grew out of control."

Bankruptcy lawyers meet a lot of people struggling with debt, and many feel honor-bound to pay their debts and guilty when they can’t. Others fear bankruptcy will have such negative consequences on their credit scores that they’re afraid to file. There are alternatives, such as debt negotiation through a qualified, reliable nonprofit agency or an attorney. You can also consider a debt-consolidation loan, if your credit is still good enough.

Unfortunately, most people who get stuck in a morass of debt are already suffering from credit consequences. Once one creditor determines you’re a risk, other creditors find out. That often means that even those creditors you’ve worked hard to pay first could suddenly decide to hike up your interest rate or increase your minimum payments. Your credit score may already have dropped due to difficulties with one or more creditors.

If you want to try to pay down your holiday debt, the fastest way is to pay significantly more than the minimum payment on one card, preferably the one with the highest APR, while paying the minimum balance on any others. Note: your credit score will go down if you close any accounts.

When paying off substantial credit card debt isn’t feasible, you should seriously consider filing Chapter 7 or Chapter 13 bankruptcy. Credit card debt can be completely discharged in Chapter 7, or paid through a reasonable, income-based repayment plan through Chapter 13.

If you’re not sure what to do, talk to a bankruptcy lawyer about your real options and the consequences you can expect in your own situation. Don’t let fear, shame, or any emotional factor stand in the way of getting the information you need.

Source: Democrat & Chronicle, "Debt hangover follows holiday fun," Tom Tobin, Dec. 24, 2013

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