Options for getting a handle on a $37,000 debt

Before you consolidate or negotiate, fix the root problem


To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs. See her website for more personal finance tips and free budgeting worksheets.
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Dear To Her Credit,
I'm a single female, 72 years old, and I have income of about $61,000 per year. Right now I am about $37,000 in credit card debt, plus I have a personal loan debt.

What are my options to consolidate and pay my bills, but still have a good credit score? If I have to close my accounts, then this will not look good on my credit report. -- Shirley


Dear Shirley,
Before you worry about how closing credit card accounts will affect your credit scores, I recommend that you examine how you got into all that credit card debt and look at some options for getting back out of it.

Many people would like to skip the step of figuring out how they got into debt, but don't. The causes of serious debt may be unpleasant, even embarrassing, but it's worth the trouble.

When examining how you got into debt, the purpose is not to place blame or point out failures. It's simply to find out why more money was charged to credit cards than you could pay off within a reasonable period of time. Maybe you already know what happened -- unemployment, health issues or a business failure, for example. If they were one-time events, and you are now in control of your finances, that's great.

If you aren't sure how you got so far into debt, your first step is to try to find that out. If your expenses are just a little larger than your income, it's easy to make up the difference with credit cards -- and it's shocking to see how fast the balances can add up. If that's the case, no amount of consolidation or other measures will help until you have a balanced budget you can live with.

Now for your options for consolidating and paying bills. If you're paying high interest rates on your credit card debt, consolidating your debts could help you. Debt consolidation is no mystery: It's just taking one loan to pay off your other debts. You can consolidate your debts yourself by finding a lower interest balance transfer card (although the credit limit on that card most likely won't be high enough to assume all your card debt), or take out another personal loan or home equity loan with which to pay off high-interest card debt.

Debt consolidation may actually make your credit history look better. Your credit card accounts will be paid in full, and you'll just have one loan to keep up with. Depending on the type of loan you get, you may not need to close your existing accounts. If you have more than a few cards, consider closing some anyway. You don't need a lot of credit card accounts to maintain a good credit history. You'll probably want to keep the cards with the longest history, and the lowest fees and interest rates.

You don't need a debt consolidation company to help you get out of debt. If you've heard ads for debt consolidation that claim to be able to cut your debt in half, or something similar, beware. That's debt negotiation (paying less than what is owed) and will negatively affect your credit. Anything less than paying off your debts in full will look bad on your credit report and hurt your score. In addition, many debt reduction companies often charge too much, promise too much, and can even leave people in worse shape than before.

Another tempting option is to take money out of retirement accounts to pay off credit card debts. If you do that at age 72, at least you won't have to pay a penalty for early withdrawal of funds. However, unless you can withdraw that much money without jeopardizing your retirement, I'd leave those accounts alone. At this point in your life, you need the security of good retirement plans.

Chapter 13 bankruptcy is an option for people who have a good income, but need a structured plan to help them pay off their debts. Because you are concerned about your credit, this probably isn't your best bet. Besides, you would have to pay fees, fill out forms and surrender some control of your financial life to the bankruptcy plan. I'd concentrate my time and money on actually paying the debt, and avoid any type of bankruptcy when at all possible.

If you think you need help making a budget and exploring your options for paying off your debt, I recommend finding a nonprofit agency affiliated with the National Foundation for Credit Counseling or the Financial Counseling Association of America. They can help you make a budget and a debt reduction plan that takes care of your financial needs and your credit    

See related: 6 debt consolidation traps and how to avoid them, Stop the debt shuffle; figure out why you owe so much

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Published: November 20, 2015

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