When faced with too much credit card debt, you really only have 5 options:
1) Continue to make the minimum payments required by each of your creditors.
Very few consumers understand that the Credit Card Industry does not want, nor expect you to ever fully repay your accounts! Billions of dollars of interest and fees are earned from the millions of consumers who only pay the minimum payment each month. It is estimated that in takes the average consumer 15-20 years to repay a single account at a cost of 3-4 times the total amount charged!
2) Home equity loan or line of credit with your home as security.
This type of loan places your most important asset at risk. If you have sufficient equity can afford the monthly payment, this option may be viable for you.
The problem is that most consumers, who have a serious financial condition due to too much credit card or unsecured debt, usually will not qualify for a consolidation loan.
If you do qualify and secure a consolidation loan, remember, failure to meet the obligation of the 2nd mortgage could result in you losing your home! Be very careful in choosing option #2.
3) Debt Management is a program designed to help you pay off your unsecured debt in about 4 years with significantly lower interest rates and finance charges.
Agreements are established with each of your creditors.
- You will have one monthly payment that will be distributed to each creditor according to the agreement negotiated by the Debt Management Company.
- This payment is may be slightly higher than your total current payment as the minimum payments most companies require is only 2% of the balance and in a DMP, the payment is usually higher.
Will this hurt your credit score?
According to Fair Isaac Corporation (FICO), being enrolled in a Debt Management Program is not a factor in your credit score. http://www.myfico.com/CreditEducation/WhatsNotInYourScore.aspx
4) Debt Settlement Program (DSP), is a program designed for those who are…
- Facing financial hardship due to circumstances beyond their control.
- Have considered a Debt Management Program, but cannot afford the monthly payment.
- Do not want to file for bankruptcy.
Clients who qualify for a DSP have fallen behind on their payments or most likely, will do so in the near future.
The objectives of a DSP are basically twofold:
- Negotiate settlement agreements with your creditor, usually for substantially less than you owe.
- Help you become DEBT-FREE without seeking bankruptcy protection.
As the saying goes, "if all else fails...":
5) Bankruptcy should be your last and only option.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era: With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within SIX MONTHS BEFORE they file. They also must complete a debtor education course to have their debts discharged.
Bankruptcy is a drastic decision and should only be considered after seeking the advice of a competent bankruptcy attorney.
In the midst of our country's financial crisis, you are not alone. Maybe you should consider seeking help.
For a FREE Analysis that will help guide you to the right decision, click here.
