Free help first
- NFCC (National Foundation for Credit Counseling): non-profit credit counselors who look at your budget and debts, and can set up a debt management plan. Call 1-800-388-2227.
- HUD-approved housing counselors: free or low-cost help if you’re behind on your mortgage or rent.
- Your lenders: call before you miss a payment. Many have hardship programs that lower your rate or payment for a while.
Find more on our free money help page.
Talk to your lenders
Call or write as soon as you think you’ll miss a payment. Explain what’s changed, and offer what you can afford. Keep a note of who you spoke to and what was agreed. Pay essential bills first: your home, energy, and anything that can lead to losing your home or car.
The formal options
| Option | What it is | Good to know |
|---|---|---|
| Debt management plan | A non-profit credit counselor agrees lower rates with your card issuers, and you make one monthly payment, usually for 3 to 5 years | Your cards are usually closed. Fees are usually small |
| Debt settlement | A company negotiates to pay less than you owe, while you stop paying your debts | Fees are high, your credit is badly damaged, and forgiven debt can be taxed as income. Be very careful |
| Chapter 7 bankruptcy | Most unsecured debts are wiped out; some property may be sold | You must pass a means test based on your income |
| Chapter 13 bankruptcy | A court-approved plan to repay what you can over 3 to 5 years | Can stop a foreclosure and let you keep your home |
Before filing for bankruptcy, you must take a credit counseling course from an approved agency within 180 days. Student loans are hard to clear in bankruptcy: ask about income-driven repayment instead.
What each option does to your credit
| Option | On your credit report |
|---|---|
| Hardship program | Often nothing, if you keep paying what’s agreed |
| Debt management plan | A note on the accounts, and the closed cards |
| Debt settlement | Missed payments and settled accounts, for 7 years |
| Chapter 13 bankruptcy | Usually 7 years |
| Chapter 7 bankruptcy | Up to 10 years |
Your score recovers faster than these dates suggest once you’re paying on time again. Missing payments while you wait for help does more damage than most of these options.
If debt collectors call
You have rights under federal law:
- Ask for proof. Within 30 days of getting the collector’s validation notice, you can dispute the debt in writing, and they must stop collecting until they verify it.
- Limit contact. They can’t call before 8 a.m. or after 9 p.m., and if you tell them in writing to stop contacting you, they must, apart from telling you what happens next.
- No threats or lies. They can’t threaten arrest, use abusive language or misstate what you owe.
- Old debts: paying even a little on a very old debt can restart the clock for being sued in some states. Get advice before you do.
Watch out
Be wary of anyone who charges fees before settling any of your debts, or promises to make debt “disappear”. Free advisers will look at your whole situation and tell you every option, not just the one they sell.
Working through it yourself? See how to pay off debt.