Credit Card Debt Help
Let me tell you about the most popular methods of credit card debt relief available today. I think it’s important to cover the pros and cons of both of these options. There is one more option that most people are unaware of that I would like to explain. It is called debt resolution. This is a program that is like debt settlement in many ways. It saves time and money, but it also reduces some of the negative aspects associated with debt settlement.
The most common and first option is to simply do nothing at all. Surprisingly enough, most people do this. Maybe you have been doing it, too; however, you must realize that some action is necessary. The majority of people who owe credit card debt are just running on the credit treadmill. The definition of the “credit treadmill” is spending month after month making only the minimum payment to your credit card accounts and never being able to get ahead due to the high interest.
Financially, this may be one of the most serious of predicaments. Even with a low interest rate, when you are just paying the minimum amount monthly, you will be in debt for nearly 40 years. It will take you decades to pay this debt back, and you will end up paying more than 5 times the amount you originally borrowed. Many people have an interest rate (APR) in the high 20s-30s. If yours is like that, it will take you a long time to resolve your debts. Of course, you will lose a great deal more money.
I think I have said enough about that option. There is nothing good about being overwhelmed by debt and simply making the minimum payments.
After denial is over and a person is able to understand that a real problem with credit card debt exists, debt consolidation may come to the forefront as an option for debt relief.
There are a couple of ways to get out of credit card debt. Two options are consumer credit counseling and debt consolidation loans.
To begin with, here are some details regarding obtaining a debt consolidation loan. If you get a loan for the purpose of paying off your credit cards, it is called a debt consolidation loan. The best thing about this is that you will only have to make one payment a month on your loan. This eliminates the hassle of paying multiple payments to your creditors every month. Secondly, this loan may provide a lower rate of interest.
Nonetheless, I believe this is the most risky option for getting out of credit card debt. What is the reason for this? Most of the time, the only way you can get a debt consolidation loan is to use your home as security. This is essentially getting a secured second mortgage on your home for the purpose of paying off an unsecured debt. Understand that this actually means you will be converting your unsecured, low-risk credit card debt into a very high-risk debt. You will be putting your home up for security, meaning you could lose your home!
Sadly, the vast majority of people who use their home equity to pay off credit card debt end up right back in the same boat with credit card debts within a 5 year period.
This kind of debt relief can be summed up with the old saw, “no pain, no gain”. Using the money you have in equity to pay off your credit card balances and move forward seems like an attractive option. Firstly, you are still in debt. Secondly, it is the rare person who actually destroys all credit cards and goes debt free. It is all too easy to rack up the credit card debt again when you have a handful of cards with zero balances.
Eventually, when you have a second round of debt to credit card companies, you will find that you have 2 financial obligations dependent on the roof over your head; however, making that payment will have to take precedence over paying your credit card obligations. Additionally, you may have secured loans (e.g. car loans) that must be taken care of before credit card payments. However, now there won’t be any equity to enable you to get a loan. Lots of people end up choosing between losing their dwelling or filing for bankruptcy.
That’s why I believe that it is worst and most risky to use a debt consolidation loan for debt relief.
This next option may seem like debt consolidation because there are similarities; however, it is different. Debt consolidation loans and consumer credit counseling have a lot in common; however, with consumer credit counseling, you don’t have to risk the loss of your home. Here is what you can expect from a credit counseling agency: 1. They will negotiate to get your interest rates lowered. 2. They will require that you make a single payment directly to them every month. 3. They will make your credit card payment with this monthly payment (saving you the bother).
Some debtors may do best with a good credit counseling service. Nonetheless, a lot of these programs are just not workable. Credit counseling requires that you pay back everything you owe, plus interest, plus fees. Many people understand that they can’t make these monthly payments. In fact, this kind of payment may add up to more than the monthly minimum on credit cards.
The bad thing about it is that consumer credit counseling has a failure rate of about seventy percent. The reason for this is that, if you fail to make a payment, you will be excluded from the program. Then you won’t have the option of making only one payment a month at a lowered rate of interest.
Actually, credit counseling programs are often too costly for the majority of people in debt. It takes five to seven years to complete the program. Will you really be free of financial problems for that length of time so that you can complete the program successfully? This is especially true if you would have trouble budgeting for this program to begin with.
It’s a good thing that there are some other options for people who can’t do credit counseling or simply don’t want it. Another option is debt settlement. This process has enabled us to help millions get themselves out of debt in spite of the recession. Debt settlement offers benefits that are different from those described. If you choose debt settlement, you may only have to pay half or less of the principle of your debt, without considering interest. Additionally, it is realistic to believe that you can get out from under your debts in 3 years or less. This is a lot better than running on the credit treadmill for 30 years!
It may seem like a good idea to save yourself some money and some time while resolving your debt; however, there are also some negative sides to debt settlement.
One problem with debt settlement is that you can’t get creditors to work with you until you have fallen behind on your debts. There is no reason for a creditor to negotiate if you are current on your obligation. They have no reason to do so. They have no reason to negotiate if you are paying your payments every month and keeping your account current. You are on a treadmill to nowhere, and that’s just the way they like it.
Of course, if you have been able to keep your payments current, doing this will lower your credit score. Unfortunately, lots of people use this reason to postpone or avoid debt settlement, so they just keep running on the treadmill. Of course, if you are already behind in your payments, it doesn’t matter. The damage has been done.
Obviously, the best benefits come with debt settlement; however, as stated, there are also drawbacks.
