Debt Consolidation and Credit Card Counseling

New bankruptcy law takes effect soon; do you need to file?

Lots has been written about the new bankruptcy law and how it will affect those with problem debt. Less has been written about whether or not filing is a good idea and what criteria might help someone make a decision regarding whether or not to file. Everyone has financial problems to some extent, and filing for personal bankruptcy is clearly a solution that works best as a last resort.  A filing stays on your credit report for years, hurts your credit score and can make it difficult to find a job, a place to live or an affordable loan. It’s not something you ought to rush into, but with the changes in the law taking place soon, now would be a good time to assess your situation. Following are a few tips that might help you decide if this is a good step for you.

• You have more than two major credit cards with outstanding balances - Credit cards work best as a short-term loan. They are a convenience and a way to make a purchase when you don’t have the cash at hand. They shouldn’t be a funding source, as they represent a relatively expensive way to borrow money. If you have balances on more than two major credit cards, you are probably borrowing more than you can afford to repay. They are a better choice than payday loans, but are still not a good way to borrow money.

• You are paying the bill for one card by taking a cash advance on another - Taking a cash advance from Visa to pay your Mastercard bill is not an indicator of sound fiscal living. If you’re borrowing money from one source at 20% to pay another at 20% and you’re paying a cash advance fee, too, you’re probably in over your head.
• You are making the minimum payments only on your credit cards - New laws require the credit card companies to have you repay your balance in a “reasonable” amount of time. This has resulted in a doubling of minimum payments. If you have a $10,000 balance and you’ve been paying $200 per month, it’s going to double to $400. If that’s all you’ve been paying, you’re in a lot of trouble.
• You are writing checks without money in your account to cover them - People often write checks a few days before payday, hoping that the “float” will keep them out of trouble until the money gets deposited into their checking account. There are a couple of problems with this - new electronic processing methods have sped up the time a check takes to clear and it’s against the law. There really is no “float”” anymore; checks clear almost immediately. And a bounced check only adds to your misery as you may incur fees from both your own bank and the payee.

These are a few of the indicators that you might be in enough financial trouble to justify filing for bankruptcy. We’ll cover some other examples in the next article.

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