Knowing Your Options When Your Credit Card Bills Become Too Much to Handle
By Eric Wood
Credit card debt is a serious issue that affects many people in this country. In Part II of our series; What You Need to Know About Credit Card Debt, we’ll talk about what options you have when you find yourself with too much debt to handle.
We have some good news though. Relief does exist. Today there are a variety of programs available that can help you lower interest rates, extend payment terms, help you negotiate a new loan, and reduce the principal you owe. Here are the facts on each program to help you determine which is right for you.
One of the most widely known credit card debt relief programs in existence is debt consolidation. Simply put, debt consolidation is the process of combining multiple existing loan payments into a single, more manageable monthly payment. A debt consolidation company has the expertise and knowledge to work with multiple lenders and extract more favorable terms. The end result is is a program and monthly payment that you can afford.
Credit card debt is unsecured debt. There is no collateral tied to it. If you were suffering a financial hardship and could not for a time or for the foreseeable, future pay your credit card bills, you could be subject to harassing phone calls from the credit card company and collection firms. You could also be sued for repayment of this credit card debt. Lawsuits over credit card debt depend on many factors including:
- Whether or not there is a co-signer on the account(s) which the credit card company can pursue
- The length of time at your current job for a long period of time or not
- Age of the customer
- Total dollar amount of the debt owed
These factors and other determine whether a credit card company decides to pursue a lawsuit against a customer that has defaulted on credit card debt. But generally, credit card issuers are usually willing to work with their customers towards repayment of the debts owed.
However in the case of debt consolidation loans for homeowners, you are essentially exchanging unsecured debt for secured debt. And this security almost always comes in the form of a home equity loan. If a consumer goes down the road of a credit card debt consolidation loan, and it is in the form of a home equity loan, and they do find themselves unable to make their new payments at some time – they risk losing their home. Therefore, for debt consolidation to work and be successful, you must have reached a point where you are on sufficiently stable financial footing to be able to continue to make your new payments – because the stakes are high.
Consumer Credit Counseling
If you are in a position where you find yourself beginning to slide down that slippery slope of credit card debt, then consumer credit counseling can be extremely beneficial. Credit counselors are able to analyze every aspect of your finances and budget. Based on this in-depth evaluation they can craft a personally tailored strategy for paying down credit card debt.
One of the key methods employed by credit counseling is the creation of a personal or family household budget. In order to understand and follow the money trail it’s important to lay down on paper or on an Excel spreadsheet every expense that comes up. Seeing in black & white how much is being spent and on what every month can be a real eye-opener. Those gourmet morning coffees surely add up, as does dining out, entertainment, etc.
A household budget designed with the aid of a skilled credit counselor can therefore be extremely beneficial for those whose credit card debt issues have not yet reached critical stage. And many consumer credit counseling services are in fact non-profit groups, so you can rest assured the credit counseling service has your best interest at heart.
A newer program and method of debt relief that has been gaining in popularity and getting much media attention of late is known as debt settlement. The program differs greatly from debt consolidation. For starters unlike debt consolidation which simply seeks to gain a lower monthly payment with a lower interest rate and/or extended payment terms, debt settlement works to actually reduce the principal that a consumer owes.
Here’s how it works. A consumer will authorize a debt settlement firm to negotiate on her behalf with her creditors. Also known as debt arbitration or debt negotiation, this type of program can typically achieve reductions of debt as high as 50% to 75% off of the original amount(s) owed. What is even more amazing is that this reduction in debt is achieved without all the harmful effects of a bankruptcy filing.
Debt Relief Takes Time
Even a debt settlement program however takes time to complete and to eliminate one’s debt. Consumers in debt need to realize that their personal credit card debt issue did not arise overnight; it grew over time, typically several years. And it will take a few years to complete any debt relief program. The good news is that there are indeed many programs in which those who are struggling with credit card debt can use to their advantage beginning with today.
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