So you have found yourself stuck in debt and are somewhat dumbfounded as to what you can do to get yourself out of this hole and back on your feet financially. Well you have found the right place; I will give you a breakdown on the options that are available to debtors to get themselves out of debt. Please keep in mind that not every option can work for everybody, your unique financial situation will really determine which credit card debt relief option will work best for you.
Debt Consolidation Loan: For many folks out there in debt this is the first thing they consider. Basically what is a debt consolidation loan, quite simply it is when you obtain a loan to pay off your credit cards and then have only one monthly payment on the loan. The target for this is to get a lower interest rate then you had with your cards, so you can save some money and get out of debt quicker.
Now usually this type of loan will be secured, meaning that you will have to put up something of collateral in order to get the loan. In most cases people will use the equity in their homes. For many this will seem like a simple and quick fix, however you need to be made aware of the risk that comes with this option of debt relief. For starters you must be aware that if you are to start defaulting on this loan you run the risk of getting your home foreclosed on.
The big mistake that happens all to often is that people will keep their credit cards open and start charging on them again, which then brings them back to the point of being in credit card debt however this time around you have a loan that must take precedent over the card payments, this often leads to foreclosure or bankruptcy.
Pros: A lower interest rate on the loan, and one monthly payment, which can often times, be a lot easier to manage then multiple payments on the cards each month.
Cons: Not easy to get loans in this recession for the majority of people even with decent credit, and you can risk losing your home if you in the future cannot manage the payments.
Consumer Credit Counseling: This is another very popular method of credit card debt relief that is also sometimes referred to as debt consolidation. The benefits are pretty similar to a debt consolidation loan; however you are not actually going to be getting a loan. So what will this type of a program do for you? Usually you will see a reduction in your interest rates on pretty much all of your accounts so that is one of the main benefits. Next you will now only be making one monthly payment to the credit counseling agency in which they will distribute to your creditors for you making it easier to manage your monthly budget. You must also realize you will be on a fixed payment not a minimum payment so you will not be getting out of debt within 5-7 years as opposed to 30 or more.
A couple of things you must know first about credit counseling. For starters when on this type of a program you will no longer be able to charge on your cards. Then you must be made aware that if you are to miss as much as one payment the creditors will kick you off of the program and bump your interest rates back up and not allow you to join another program for up to a year. Also as far as saving money on a monthly basis it will not be very much, often times the payment for your credit counseling program will be the same you were putting out for minimum payments each month or higher. So for those who cannot afford the minimums and are really struggling this would not be the option for them, because the failure rate of these types of programs is around 75%
Pros: Lower interest and one fixed monthly payment, get out of debt within 5-7 years.
Cons: High failure rate, not much reduction in monthly outlay.
Debt Settlement: This brings us to what has become a very popular method to get out of debt that of credit card debt settlement. Debt settlement has the greatest benefits but also some extra drawbacks as well.
Debt settlement is a process where your debt will be negotiated so that you will pay back much less than what you currently owe. The savings of money with this procedure are enormous. Another great benefit of this process is that you will become debt free within just a couple of years. Plus the amount you will put out each month on this type of program is usually significantly less than you were putting out for minimum payments giving debtors extra breathing room each month.
However like anything in life there are some drawbacks the first being you must go into default on your cards for the creditor to be willing to negotiate a settlement. So naturally your credit score will suffer from this happening. You will also receive collection calls as well. But for many people they simply have no choice in the matter it is either barely manage minimum payments for the next thirty years or file for bankruptcy.
Pros: Huge savings of money usually between 40-50% of current balance and huge savings of time, become debt free within two years or less. AVOID BANKRUPTCY!!
Cons: Negatively effects credit score and collection calls.
I hope after reading this you are a little more enlightened to how the various credit card debt relief options work and which one might better suit you. If you have any additional questions please feel free to comment and I will give you an answer to the best of my knowledge.
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