Three Foolproof Ways to Deal With Credit-Card Debt

There is no easy way to get out of debt.

Every single method of eliminating debt requires hard work... sacrifice... and more hard work.

Of course, most folks aren't interested in this method of getting rid of debt. There's not much personal responsibility today... starting with the folks on Wall Street and in Washington, D.C. Most Americans want the easy way out today.

Let's get something straight...

Each of us is morally responsible and accountable for the obligations we accept freely.

Personal debt is no different. Once you agree to borrow money and pay it off, those debts are yours unless a bankruptcy court releases you from them.

But I understand that sometimes well-meaning people get in over their heads. And there are some laws and legitimate strategies for easing the burden of debt.

Before I share these methods, you need to understand the purpose of debt...

Debt is simply a way for you to own and control more than you can currently afford from your savings. When you take on debt, you are agreeing to use future earnings to pay for something you want now.

In general, if it's something consumed – like a car, clothes, or airplane tickets – all you're doing is stealing from your future to satisfy your present desires or needs. Eventually, it will not work.

So what can you do if you're in too deep?

First, protect yourself from harassing collection agencies.

All 50 states set a legal expiration date on credit-card debt. In other words, your creditors have a limited amount of time to collect what you initially agreed to pay them. After that, you can simply tell them to leave you alone. They must obey.

This time limit is called the statute of limitations ("SOL"). And in most states, it runs three or four years.

Here's how it works: If you have debt of, say, $15,000 on a credit card that you have not used or paid off, and if you haven't communicated about the debt with the company within a certain time limit, then the debt is considered expired. And if anyone calls you up about it or tries to collect on the debt, you just tell them "the debt is expired" and hang up. Voila... For all practical purposes, that debt is gone.

Note, I said you haven't "communicated about the debt" with the company. That's the catch. The statute of limitations starts running from the date of last activity. Again, the rules vary from state to state (and you should definitely research the laws where you live).

But essentially, if you have ANY interaction with the company, the clock resets...

  • If you pay off a little bit, the clock starts over.
  • If you call the company and talk to them about the debt, the clock restarts.

So if you happen to be in this predicament and the clock has been running, don't interact in any way with the creditor. If the company threatens to sue you, ask it for "proof of the debt" as this is the only response that doesn't reset the clock.

Once the SOL time comes, the creditor can no longer sue you for the debt. But as I mentioned, the debt still exists – the creditor simply has no recourse to recover it in the courts. And telling it "the debt is expired" prevents the creditor from contacting you again. All by law.

No matter your ethical or moral view on paying back your debt, the law protects you from a lifetime of harassment. If you're in a debt situation where this makes sense, please check with your state laws to uncover the exact time limits. Look up debt online at your state's website (usually the state's initials followed by ".gov" – for example, for Maryland) for specifics.

If you don't feel it's right to renege on your debt, but you still face big debt problems, you can do two other things...

Negotiate with your creditor. If your circumstances are truly dire – no job, no assets, or no income – you can document this fact.

Put together a financial statement, including a balance sheet and income statement. Then have it verified by someone reputable who knows your financial circumstances – a tax preparer, bank officer, etc. Share that with your creditor and explain the likely outcome is bankruptcy. It would get nothing or very little if that happened.

Instead, suggest a 50%-or-more cut in the amount of debt you owe. If things have come to this point, you might also have fees and penalties that were tacked on in past statements. Ask for those to be removed, too. Once the company sees you have no income or a negative net worth (your debt is greater than your assets), it will be willing to negotiate a deal.

And one other tip: Be sure to ask it to remove any bad marks on your credit report once you settle, even the one that says you settled for less than what was owed.

The final thing to do – and do it right away – is to ask the creditor to lower the interest rate on your card. A few years ago, I missed a payment with my American Express card due to a travel snafu. My next statement showed the interest rate had jumped up to 33%. I quickly called and told them to change it back to the old interest rate or cancel the card. They lowered the interest right back down. And you can easily do the same thing I did.

If you have trouble, be nice and call back until you find the right supervisor to help you make things better. If you're like the average American with a balance of $8,000, lowering the interest rate by 4%-5% can easily save you a couple hundred dollars a year. And look out for deals of 0% with a balance transfer. Just be sure to pay those off regularly – otherwise, the rate pops up again if you're late or miss a payment.

Finally, if you haven't done it already, remember to get your free credit report from one of the three credit-reporting services. By law, you can get one a year. I rotate through each of them since they each have slightly different information in their databases. You can get the report online from

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