Various Methods of Credit Card Debt Relief Other Than Bankruptcy
By Anonymous
As of 2006 the average American household was carrying around $9,000 of credit card debt and paying over $1,200 a year in interest. This number is projected to continue raising as time goes on. Thus forcing many to look for a way out of credit card debt. The problem is that most people do not know what options there are available to them, let alone which one would be best for their situation. In this article I will briefly touch on what debt relief options are out there.
Do Nothing - This is what the vast majority of people do. Which is absolutely nothing! They just continue paying high interest and minimum payments, which takes for many decades to pay off and costs thousands of dollars in interest. While this really isn't an option for debt relief it needs to be mentioned because many people get stuck in what is sometimes referred to as the "credit treadmill". The credit treadmill is where the creditors want you, paying high interest minimum payments for the rest of your life. While they earn billions of dollars annually.
Debt Consolidation Loan - Most debt consolidation loans are secured, meaning collateral on the debtors end must be put up, in case they default on the loan. Usually people use the equity from their homes if they are homeowners, although cars, bikes, and boats have been used as well.
With a debt consolidation loan you have the ability to pay off all of your credit cards and just pay on the loan, which in most cases is lower interest. Saving you money on the interest and making it easier to pay your bills every month. There are however risks associated with a loan like this.
Statistics show that over 70% of people that obtain debt consolidation loans, within five years are back in debt as deep or deeper than they were previously. Forcing many to either get their homes foreclosed or having to file for bankruptcy. Another thing to mention about debt consolidation loans is that they are hard to get if you do not have good credit, especially a favorable loan with a low interest rate.
Credit Counseling - Credit counseling agencies offer the benefits of getting the interest lowered and having only one fixed monthly payment. Staying at the fixed payment is much more beneficial than paying minimum payments, because you pay the debt down must faster. Plus the benefit of having only one payment to make to the credit counseling company each month is a lot nicer than trying to juggle 15 payments to your various credit cards.
The credit counseling agency takes your money and disperses it to the creditors for you. There are however a few drawbacks with this too, one being if you miss as much as one payment the credit card companies can kick you out of the program, meaning back to high interest.
And many times the payment that will have to be made is pretty close to what was being paid out on all of the bills in the first place. So for people who are having a very hard time staying current in the first place this may not be the best option, which brings us to debt settlement.
Debt Settlement - Debt settlement is a process where the creditors accept a reduced balance. Unlike credit counseling which only reduces the interest payment, through debt settlement the actual balance you owe will be reduced. In many cases 50% or more. Debt settlement can either be done on your own, or through a debt settlement company.
For people who do not have the time or knowledge to know how to properly negotiate with the collectors and creditors a company would be advisable. So the benefits of debt settlement are the saving of money and time, obviously by only having to pay half of what you owe back you save time.
However this to has drawbacks. For one, during the settlement process your credit score will take a hit, because your account must be defaulted in order for any creditor to be willing to work out a settlement. If you are current that is where they want you to stay so they can earn high interest, so you must fall behind.
Another drawback are collections calls, some companies can somewhat curb the calls but more than likely you will still experience to some degree collections calls. Plus there is always the chance that a creditor can sue, however the vast majority of people will never be sued, but it is still a reality.
The tough decision is always to figure out which would be best for your situation. Well it depends on how much you owe, and how much you make. For people with a relatively low amount of debt meaning $8,000 or less and who aren't having much of a problem staying current, then credit counseling is a better choice.
However for people with a higher amount of debt such as $20,000+ who are legitimately struggling to pay their bills and realize the debt balances aren't going down then debt settlement is a much better option. As far as when debt consolidation loans are useful, my personal opinion is that they should be used with caution.
A person must commit themselves to never using credit cards again or they will be financially doomed. Most people pay off their balances and leave their credit card accounts opened just waiting for the day you will start charging on them again. Once back in credit card debt you will now have one if not two secured loans against your home to pay back too, like I said earlier forcing many into bankruptcy and foreclosure.
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