Published: Monday, 13 Jul 2009 | 3:57 PM ET

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By: John Ulzheimer
On The Money Contributor

Question: My name is Brett and I a college graduate. I currently develop software and have been doing this for a few years now.

I graduated college in 2006. During college, I racked up quite a credit card bill (about $35000 in credit card debt + $8000 in student debt). I have stopped using the cards and have been paying above the minimum every month. I try to be aware of my finances and even use services like mint.com to keep track of my spending trends and budget. But, due to the financial and credit crisis, my fixed rate credit card at 9.99% changed to a variable rate card at 14.00%. I guess I missed the opt-out period before this change and it was not clear to me in the letter the bank sent me that my card was changing to a variable rate. My minimum payment on my one card went from $250 a month to $350 a month and is pushing the limits of my budget which is already in the negative or barely positive.

I now feel stuck, desparate, and anxious. I guess I fell into the Generation Y "Debt Trap" and I am trying to find a way out. I currently project it will take about 10 years to get out of my credit card debt, assuming my interest rates do not change any more, I do not use the cards, and pay consistently every month. I am considering trying to do a balance transfer to a "fixed" rate card with a intro. 0% APR, but I doubt I will get approved although I pay all my bills on time and have a 700+ credit score. My other option is to try credit counseling or debt consolidation, but my employer runs my credit each year and I do not want to risk my job to get my credit cards into line.

I even talked to a California based company, Armored Debt, and they want me to go delinquent on my card payments and to pay them $7000 into an "escrow" account so they can try to negotiate down my debt with the credit card companies. I thought about stopping my 401k constribution and/or cashing it out (even with penalty) to try to take a stab at my credit card debt. Due to the current crisis, my employer stopped providing a 401k match, but I struggle with being taxed harder if I do not contribute to my 401k. I have accumulated about $11k in my 401k since 2006 and will be vested in 100% of it by the end of this year.

Do you have any advice for me as to how to absolve my credit card debt? I really feel stuck.

Thanks,

-Brett

Answer: Brett - Don't assume that your credit card interest rates will stay the same for the next 10 years. In fact, don't assume they'll stay the same for the next 10 minutes. You suggested that you're entertaining several options to get out of credit card debt and that you're concerned about your employer seeing anything adverse on your credit reports.

First off, the settlement option is a bad idea because it will trash your credit more so than it would trash someone's credit who had a delinquency problem, which you don't. Forget about that option. The credit counseling option is a good one because your credit report remains clean. It will also cut your time to pay off the debt to about 3-5 years. Be sure to choose a reputable company who is part of the NFCC, at www.NFCC.org . Don't stop contributing to your 401k.

Best of luck,

John Ulzheimer

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