Debt Relief Options

If you have credit issues, at some point, you have to stop the bleeding. The five worst things you can do regarding your credit situation are outlined below:

• NOTHING - You live with the consequences of doing nothing and the issues are always on your mind. If you pay the minimum payments you will make those payments for an extended time period, usually 25-45 years or more. The cost, the interest you pay before deciding that you need help. If your card(s) are maxed out or near their limit, chances are your credit rating has already been negatively affected.
• 2.BANKRUPTCY - Bankruptcy laws have changed and are more restrictive than in the past. New laws favor creditors. Consumers need to clear certain hurdles before filing, such as undergoing credit counseling via a government-approved agency within 6 months of filing, and a “means test” which qualifies your income as being below a certain amount. Bankruptcy can cost you court and attorney fees, and it can remain on your credit report for up to 10 years, which can make getting a loan very difficult during that time span. Once completed, most have a long and difficult path to re-establishing their credit.
• 3.DEBT CONSOLIDATION - Debt consolidation is a loan. The loan proceeds are used to pay your creditors and you repay the loan to a debt consolidation agency. Doesn’t save you much, if any money, as you pay back all you owe plus interest. Even if you are current on your payments, this option is reported to the credit agencies stating you are not able to handle your financial affairs. Your credit worthiness is called into question and is often considered as serious as a bankruptcy. Debt consolidation often stigmatizes your credit report for 7 to 10 years while often not saving you money. Additionally, many of the consolidation firms say they are non-profit but are paid directly from the credit card companies. It is a way for them to disguise their attempts collect.
• 4.DEBT COUNSELING/MANAGEMENT - Debt counselors reorganize your payment plans and give you a longer amortization period allowing for smaller monthly payments. You pay back your full principle. Late fees and a new interest rate are negotiated. Often, it does not address what to do with the debt that can’t be managed or if you are behind on your payments. Like Debt Consolidation, this option reflects negatively on your credit report and states you are unable to conduct your own financial affairs. Lenders often consider these programs similar to bankruptcy and you may have a more difficult time re-establishing new credit. Your credit worthiness has a negative 7 to 10 year stain. Again, it’s another way for credit card companies to disguise their collection techniques.
• 5.HOME EQUITY LOANS - A home equity loan falls under the category of consolidation. You borrow money as a secured loan against your home, reducing the equity of your house. You pay back the full amount plus interest on a long amortization schedule. These loans are usually adjustable interest rates and you must qualify for the loan. Today, most lenders require a very high credit score and a strong equity position in your home. You are reducing the equity in you home as well as paying compounded interest over 15 –30 years. Should interest rate rise on your equity loan, it could place you in a position that might force the sale of the house. In today’s market of stricter loan qualifications and falling prices, its much harder to qualify and less attractive.

Debt Elimination vs. Debt Counseling/Consolidation

Counseling and consolidation takes all of your bills and puts it into one lump sum. Now what there really doing is just lowering your interest rates. In most cases, you’re just paying back the full amount just at a reduced rate. But if it’s too much debt, it’s too much debt at any interest rate. Often, it does not address what to do with the debt that can’t be managed or if you are behind on your payments. What most people don’t realize and these companies don’t tell you is that they report on a monthly basis to the credit reporting agencies as a third party assisting in collecting a debt.

This says to people reviewing your credit is that you couldn’t handle your own affairs and it’s viewed as the last step before bankruptcy. Additionally, in most cases, these companies are setup by the same creditors you owe; it is common for credit card companies to disguise their collection techniques. Although they say their non-for profit, they receive a percentage of the debt they collect from the credit card industry. Under the program, nothing is reported to the credit agencies. Your account will reflect, “paid" or "settled with zero balance” and you showed you have handled your own affairs. The attorneys work only on your behalf and support you until the completion of the program.