Credit Card Debt
If you are one of the millions of consumers that is struggling with credit card debt, this article aims to offer advice and solutions to you. The good news is that there are a myriad of programs and services available which aim to provide real debt relief and offer consumers a chance at a fresh start.
Most certainly what most consumers think of when faced with dire financial circumstances and mountains of credit card debt is bankruptcy. The word itself can make one shudder; as well it should because while bankruptcy can offer a wiping of the slate clean (to a limited extent) it brings with it a vast array of extremely negative and long-lasting consequences.
These include a virtual destruction of the filer’s credit record, and the inability to obtain future credit and loans since the bankruptcy filing will remain on the filer’s credit for up to 10 years. That being said, bankruptcy does have a place in the realm of debt relief. However, it clearly is the option of last resort and needs to thoroughly be explored in depth with one’s family and attorney before deciding on it as the option that makes the most sense.
There are, however other programs and forms of debt relief which offer immediate benefits and relief for those struggling with credit card debt. A newer program which does not involve bankruptcy or standing before a bankruptcy judge is known as debt settlement. A relatively new program compared to bankruptcy, debt settlement is a program which can achieve spectacular results in the reduction and elimination of credit card debt.
Debt Settlement
A debt settlement firm negotiates on behalf of the consumer with their creditors. Their aim is to seek a great reduction and compromise off of the original amounts owed by the consumer who is suffering a financial hardship. It is normal these days for accounts to be settled for 50% down to 25% of the original amounts owed. The consumer enters into a new payment agreement with the credit card companies, and upon completion of the payment plan the creditors report the accounts as “settled” to the credit reporting agencies.
Consumer Credit Counseling
Another option which consumers have available to them and can be quite effective they are not too deeply in debt is consumer credit counseling. In fact, 6 months of consumer credit counseling is now mandatory prior to one being able to file a bankruptcy petition. Yet, consumer credit counseling can actually prevent a smaller credit card debt problem from growing into something more sever, more out of control. Credit counselors are able to sit down with and examine a consumer’s entire financial state. They can pinpoint the positive as well as the negative in the consumer’s personal finances and formulate a plan that will stave off a financial crisis from occurring and prevent a debt situation from spiraling out of control.
One of the tactics which consumer credit counselors employ is the development of a personal household budget. This budget is key for a consumer, whether in debt or not to understand exactly where their money is being spent. It can shed light on where funds are being wasted. When a person is going about living their day to day lives, buying their daily coffee, buying their daily lunches and dinners, renting DVD’s, going out, etc. it can be next to impossible to calculate or even guess how much money is being spent and/or wasted. With a budget in place that one can see in black & white on paper, or on an Excel spreadsheet it is often quite surprising when one realizes where all the money is going. The consumer credit counselor is without a doubt able to offer advice and real world solutions to those consumers who are not too far in debt.
Debt Consolidation
Another program available to those consumers dealing with credit card debt is debt consolidation. Debt consolidation itself does not necessarily involve a new loan being taken out, although it may. Debt consolidation can be helpful to consumers who are struggling with credit card spread out over multiple credit cards, and find it difficult to manage payments of multiple cards. A new loan may possibly be taken out at a lower interest rate than the existing multiple loans.
This program has the benefit of giving the consumer in debt a single, lower monthly payment that is easier to afford. The drawback with debt consolidation is that while the consumer benefits from a lower monthly payment the length of the loan term is extended. Typically with a debt consolidation program the consumer in the end will pay a higher amount, although over a longer period of time and at a lower monthly rate.
Bankruptcy
Finally, we can discuss the granddaddy of all debt relief programs – bankruptcy. Bankruptcy as institution is established by the U.S. Constitution. The last 2 major overhauls of the system occurred in 1978 – that reform became known as the Bankruptcy Code, and in 2005 major changes were made to the bankruptcy laws which tilted the system more towards creditors. This was done to prevent the abuse of the bankruptcy system and to reduce the number of petitions which are filed and also to reduce the number of consumers who file more than once during their lifetime.
Bankruptcy was enacted to offer the U.S. consumer a chance at a fresh start, though the consequences of filing for bankruptcy are extreme and severe. Unfortunately, the wide array of bankruptcy lawyers these days that are advertising bankruptcy on TV ads do not tell the whole truth and nothing but the truth. Instead, they highlight the positive while not informing the viewers of the negative. And the negatives are numerous and considerable.
For example, filing for bankruptcy is a tremendous and horrible stain on a consumer’s credit record. This stain will remain on the consumer’s credit record for up to 10 full years. With a bankruptcy filing on their record, the consumer would find it nearly impossible to obtain any sort of credit or loan during this time period. Home loans, car loans, virtually any sort of loan for which they applied for would be rejected because of the stain of bankruptcy. Another serious consequence of filing for bankruptcy would be the possibility of losing one’s property and possessions. That is because there are many forms of property which are not addressed by a bankruptcy filing. Also, properties such as homes that have a lien against are offered no sort of shield or cover whatsoever by standing before a bankruptcy declaring one’s self to be bankrupt.
Still other fallout from a bankruptcy filing include the very likely possibility of a consumer that has filed a bankruptcy petition in the past and also finds themselves out of work and looking for a job (a very likely scenario in today’s economic climate) could find themselves being passed over for a job in which they have applied for. This would occur as a direct result of the bankruptcy filing as more and more employers are performing credit checks as part of their routine process for screening job applicants.
Other implications of a bankruptcy filing would include the near certainty of being required to pay hefty deposits for basic home utilities such as water, gas, electricity, and phone and internet service. When struggling with credit card debt, the consumer needs to be very aware of the pros and the very real cons of filing a bankruptcy petition.
The Credit Card Companies
One could make a very compelling argument for the credit card companies themselves being much to blame for the viral-like spread of credit card debt in America today. It was and is the credit card companies which inundated and continue to inundate consumer’s mailboxes and email inboxes with credit card offer after credit offer. They have made and continue to make offers to consumers that are sweetened with introductory rates that then balloon to a much higher rate at a later date. The consumer, quite frankly is unaware or unconcerned at the onset of such a scenario. Credit card companies also have taken it as their so-called right to enact rate hikes and hide hidden fees in small print in plain sight, with the hope of consumers then only making the minimum monthly payments. This is, of course the business model in which the credit card companies make their greatest profits.
Consumers who make only the minimum monthly credit card payment realistically will not pay off the balance of their credit card bill for 20 years or more – with an astronomical dollar amount of interest paid to the credit card company in the process. It has been shown through calculation that if one pays only the minimum credit card payment on a balance of $2,000 for example – at the end of paying off that bill 10-20 years later, one will have paid nearly double of what the original principle amount owed was.
In the end there is much to be said for how the crisis of credit card debt came to be. But there is also much to be said for the good and invaluable programs which provide true debt relief to consumers in America today.
To learn more about credit card debt and the programs which exist and are available today to reduce and eliminate this debt, please visit Total Debt Relief.