Consumer Alternatives to Eliminate Debt

As a nation we owe over $621 billion on credit card debt alone. Personal bankruptcies now exceed one million per year. There is a great need in our culture for responsible personal money management. The key word here is "RESPONSIBLE". The access to programs and specialists that can help you get out of debt, protect and build your credit, and in general help safe guard your financial well being, is overwhelming. The following information is presented as a service to anyone looking for valid alternatives to eliminate their personal debt. We are confident you will find this information extremely valuable in helping you make an educated decision on which debt resolution program is best suited for your individual financial needs

THE "DO IT YOURSELF" SOLUTION

A very common strategy for handling debt is to use the "Do it yourself" approach. Most people only seek assistance or advice when they lose control, and it's the same with your debt, only it usually takes longer to recognize the patterns that lead to financial ruin. It's very common to keep making those minimum payments until you are having to juggle payments or look for more low interest offers just to keep you hanging on the edge. This usually turns into a situation where you hope the problem just goes away on it's own, which is not likely to happen.

Only YOU can decide when it's time for some help. Maybe you will win the lottery or get a large raise, and all your problems will disappear. However, if you are only able to make minimum or near-minimum payments, it's more likely that the situation will become more and more desperate until you are backed into a corner. If you see yourself heading down that path, you may want to consider getting some help now, before your options dwindle.

Most people who have a large debt load just continue to pay each statement as it comes due, and then do the best they can at that point. You live day-to-day struggling to pay each bill, instead of considering solutions that may get you out of debt completely.

Making minimum payments is a very slow way to get out of debt. You may notice that your balances aren't decreasing. Most people are shocked to learn that it would take 26 years to pay off $8,000 in credit card debt at 18% interest, paying only the minimums each month. And the interest paid would be $11,423. That's eleven thousand dollars in interest on an $8,000 debt!

What are the chances that you would have an emergency during those 26 years and get behind on your payments?

Consider this—if you are close to your credit limit, making a minimum payment may not be enough to keep you from going over the limit, resulting in an over limit fee that can be as much as $35. Now, you have to come up with an extra $35 to pay the fee the next month, and you can't afford to pay one of your other debts, resulting in a $25 late fee. You have to juggle another payment to be able to afford that payment.

The next thing you know, your creditors raise your interest rates because some payments have been late and you are over your limit. An increase in interest rates means an increase in payments.

At this point, you may decide to call your creditors and ask for some help. So you call their customer service center and explain your situation. You may try to negotiate a lower interest rate or a lower minimum payment or both. They will transfer you to a special department, trained to deal with customers like you. Then they will either attempt to pressure you into making your regular payment, or they will offer you their "hardship plan", which most people accept.

On these hardship plans, the bank will typically reduce your interest for six months, "graciously" allowing you the time to get back on your feet. Unfortunately even if they temporarily lower your interest rate, most of the payment you are sending in will still go toward interest charges. So if you are still only able to make minimum payments during this six-month period, you will barely chip away at your balance. Then your interest rate will increase again, and you will continue to fight to lower your balance. You will continue to fall further and further behind, considering drastic measures such as bankruptcy to end the worry and fear that comes with being in debt.

The only way a "Do it yourself" plan works is if you can afford to pay large chunks of your balance off at a time... and face it, if you could do that, you wouldn't be in debt in the first place.

FACT #1:

Today, the typical U.S. household carries an average credit-card balance of $7,500 up from less than $3,000 in 1990.

FACT #2:

In 1990, the typical U.S. household saved 7.8% of its income; in 1999 that same family spent 0.1% more than it earned.

TAKE OUT AN EQUITY LOAN ON YOUR HOME

Equity loans are a common choice, and are often touted as an easy way to get out from under the burden of credit card debt. It sounds good, doesn't it? Take out an equity loan on your home, and instead of paying those cards at 20% interest, you could have one easy payment with as little as 6% in interest. There are three major flaws in this plan though.

The first is that it does not address the issues that got you into debt in the first place. You used your credit cards, and you kept charging and building up your balance until it was out of your control. So if you get a loan to pay off those accounts, you'll suddenly find yourself with a whole new source of spending power - all your old credit cards will be empty and just waiting for you to use them!

At first, you may just think you'll just use your card this once, for something you feel is important. Then you may justify some other purchase, which may be valid. Maybe your pet needs veterinary care or your child needs some dental work. The next thing you know, your balances will begin building and you'll not only have maxed-out cards, but you now have to make payments to your consolidation loan as well. A study showed that two out of three people who borrowed against their home equity to pay off credit cards had run up more credit card debt within two years!

You may think you can use willpower to resist the call of the cards, but it's not about willpower. It's about a change in the way you think about and use money and credit, and getting a loan simply won't teach you what you need to know.

Even if you are one of the few who has "learned their lesson" and you close your credit cards, cut them up, and refuse to apply for more credit, there is yet another problem with getting an equity loan.

You will still owe the same amount you did on your credit cards, and only a small portion of your payments will go to repay your balance. Although you've traded a high interest rate for a low one, your loan may span 15 or even 30 years! To get an idea of how this works, look at your mortgage statement. Until the last few years of a mortgage, almost the entire payment goes toward interest, and only a small amount chips away at your balance. Your equity or consolidation loan will work in much the same way. Instead of getting those cards paid off in a few years, you'll be paying off your loan for many years to come.

This is a tactic widely used by car dealers. They have you pay attention to how much your monthly payment will be, not how much you are actually paying for the car - leaving you with a seven year loan on a car that likely won't last as long as the loan. With an equity loan, you may be paying less per month than you would if you paid your cards, but you'll be paying much more in the long run.

Which leads to the next flaw in a loan. Currently, your credit cards are unsecured loans, meaning that no property or assets act as collateral on the debt. So if you default on a credit card debt, your creditor can harass you. They can send threatening letters. They can get a judgment against you, which is basically a legal confirmation that you owe the debt. In extreme cases and in some states, they can garnish your wages once they get a judgment, which can add some strain to your life. But they can't take anything away from you.

The risks involved with unsecured debts are nothing compared to the possibility of losing your home. If you pay off your credit cards with an equity loan, you have effectively traded your low-risk unsecured debt for high-risk secured debt! This means that if you default on your loan, they can have a lien put against your home and in some cases even force the sale of your property to repay the loan.

Some consumers have been misled to believe that a home equity loan might be a good idea due to the deductible interest. The IRS is advising consumers that they are cracking down on these deductions and that the interest paid on home equity loans for more than the market value of your home, where such a loan is used to repay unsecured consumer debt, is not deductible.

The bottom line: these loans are usually NOT a viable solution to get out of debt. If you are still considering an equity loan as an option, please do careful research before jumping into a commitment you may regret for a long time.

FACT #3:

Two out of three people who borrowed against their home equity between 1996 and 1998 to pay off credit cards had run up as much as or more credit card debt within two years, according to a study by Atlanta research firm Brittain Associates - MSN MONEY

To find out if debt settlement is right for you, fill out our FREE, no-obligation on-line form or call 866-810-3210 and get started on your new debt-free life!

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