"I'd
rather go to bed without supper than rise in debt."
Ben Franklin
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Debt Relief for Unpaid Credit Card Debt For many consumers facing outstanding debt obligations, the options of eliminating that debt are not always easy to come by. Furthermore, how does the average debtor truly determine what debt relief option is the best considering their specific circumstances? Fortunately, with levels of consumer debt rising drastically in the United States, there is an increasing amount of literature available for debtors to research. While a proportion of that literature may not necessarily be very informative, people now have easy access to basic information pertaining to their debt relief options. This article is geared towards providing consumers with an overview of bankruptcy, credit counseling, and debt settlement.There are three major forms of debt relief available for consumers today. Bankruptcy, while it should be avoided if at all possible, is an option for consumers that can provide debt relief. In a Chapter 7 bankruptcy, a consumer is forced to liquidate all of their non exempt property. This property is sold and the proceeds from those sales are used to pay off their debts. Chapter 7 bankruptcy stays on your credit report for 10 years and your public records for 20 years. Comparable to credit counseling, Chapter 13 bankruptcy sets the debtor up on a five year installment plan in which they pay a high monthly payment to a court appointed trustee who disperses monthly payments to your creditors. This is rarely successful as the monthly payment may not be affordable and missing one payment can be grounds for dismissal from the installment plan. Chapter 13 bankruptcy stays on your credit report for 7 years and your public records for 20 years. Filing bankruptcy has the most catastrophic impact on your credit report. The oldest and probably the most familiar debt relief option is credit counseling. Typically, credit counseling programs will provide consumers with debt management services that help the individual establish a manageable budget while they are enrolled in the program. More specifically, though, the main goal of credit counseling is to lower the debtor’s interest rates on their credit card accounts which can ultimately help lower the amount that they have to pay back in the end. The programs are usually set up for 4-5 years, and unfortunately often times are ineffective in lowering consumers debt levels because the creditors can refuse to reduce the interest rates altogether. Often, consumers end up paying back more than the full debt amount over a long period of time because the interest rates do not change while they are enrolled in the program. A more recent debt relief option for consumers is debt settlement, often referred to as debt negotiation. Debt settlement programs are best suited for people who want to pay off their debt but realistically cannot do so unless the total debt amount is reduced. In its very essence, a debt settlement program is an effective bankruptcy alternative for debtors who want to improve their financial situation by settling their debts. The consumer makes a comfortable monthly payment into a savings account set up in their name where the funds accumulate. Throughout the program, which is typically set up over 2-3 years, negotiators work on the consumers behalf to reduce the total debt amount anywhere from 40-60% off the original balances. Once an optimum settlement is reached with the creditor, they will be paid off with one lump sum payment. For this to work, the accounts must be closed down and considered past due for the creditors to negotiate with the company. As a result, there is a negative impact on the credit score while the debtor is enrolled in the program. And yet, the program can essentially help to rebuild a person’s credit in the long run by improving their debt to income ratio which accounts for 30% of their credit score. It is necessary that consumers understand the essence of a good credit score. Having a good credit score is important because you want to appear to be lendable. However, if you have outstanding debt obligations that have yet to be settled (that will inevitably appear on your credit report), then a good credit score becomes somewhat insignificant at that point. In the end, debt settlement offers a shorter solution with a higher success rate than credit counseling and less of a negative impact on your credit than filing a bankruptcy. | ||||