Be Debt-Free - Options and Strategies to Reduce Debt
If you’re in debt and having difficulty keeping up with your monthly
bills, apparently you’re not alone. The issuers of credit cards
recently reported their 2006 profits – and those profits are
staggering. Take a look at the following reported earnings from credit
card companies:
* Profits from interest charged to credit card holders: $90.1 Billion
* Profits from fees charged to credit card holders: $55.2 Billion
Wow – profits earned from issuers of credit cards far exceeded even
those earned by oil companies, yet the entire country seems to be
taking issue with oil executives, and haven’t blinked an eye over the
outrageous costs associated with purchasing items on credit. Nor are
there laws to protect consumers from credit card gouging. If you make a
late payment, you’ll be penalized. So, let’s get this straight; if you
can’t afford to pay your monthly bills, credit card companies are going
to charge you even more. Makes no sense, but for some reason this
practice is legal.
Since the delinquency rates on credit cards are at an all-time high,
there’s a good chance you may find yourself looking at options to put
your credit card debt and money concerns behind you. Here are some of
the choices available to consumers who are struggling to pay their
bills:
* Bankruptcy – Most people resort to bankruptcy only in the severest of cases. For instance, if your debt and credit card payments are unmanageable, and you’re certain you won’t be able to maintain payments to a consumer credit counseling agency, or have the option to borrow sufficient funds in order to attempt to settle your accounts for less than the full balance, you may simply have no choice, and bankruptcy will be the only option available to you.
* Debt Settlement – Debt settlement is the route best used when individuals can simply no longer afford their monthly bills, and are reluctant to commit to a long term repayment schedule due to potential unforeseen circumstances.
Debt settlement has helped many families become debt-free by negotiating with your creditors to pay your account off for less than the full balance, usually 50% or less. To qualify for debt settlement, you must have sufficient funds available when a settlement is reached with your creditor to avoid defaulting on the settlement agreement. So, if you are unable to rely on personal savings, a loan from relatives or a friend, funds from your 401k, or perhaps a home equity line of credit, unfortunately, debt settlement is not an option you can seriously consider.
* Debt Consolidation – Hmmm. This is an option I’m not entirely fond of. Reason being, 85% of people who pay off credit cards through debt consolidation end up charging the majority of their cards back up to near their credit limits. So, instead of owing the amount they originally were obligated to pay, they now owe at least double. Be very careful if you find yourself saying “I would never do that.” Most of the 85% of individuals who have consolidated their debt have uttered those exact words.
I encourage you to consider all of your options closely, and hold off on your final decision until you’re well educated and comfortable with the consequences of that decision. While I don’t necessarily agree with those who are concerned with their credit score, I do understand that it may be difficult to trade in a good credit rating – even if it means you’ll have peace of mind through freedom from debt. Just be sure you're certain to weigh your options and have all the facts.
About the Author: Marie Megge is a consultant in the credit services industry. Over the past several years she has assisted many individuals in resolving their debt-related matters. For more information regarding credit and debt visit www.donaldsonwilliams.com.