Over the past couple of years the US economy has seen some pretty dark times, and the outlook for the near future still remains pretty bleak. Many people have lost employment or have taken a significant decrease in pay thus putting huge stress upon their financial situations. One of the biggest problems many American’s are dealing with right now is having large sums of credit card debt and not really knowing what to do to pay off that debt.
I have been in the credit card debt relief industry for over 10 years now and have a very extensive knowledge as to how it works and the differences between the various options available to overburdened consumers. I hear many people ask “How can I pay off my debt and still keep my head above the water? Is it possible?” The answer is yes, however everyone has their own unique financial situation and depending on where you are will determine which course of action is best for you. I will state right now that this will be a rather long article in which I am going to go over the four most popular methods of debt relief being debt consolidation loans, credit counseling programs, debt settlement programs, and last but not least the little known option of debt resolution. I will go over the pros, the cons, and the bottom line with each of these options. So if you are serious about finding a solution to an overwhelming debt situation then continue reading.
Debt Consolidation Loans:
The reason I start with this as my first option is because this is the first thing many consumers consider when they are in debt and need to find a way out. I want to explore this option and explain why in my opinion this is a very bad idea.
A debt consolidation loan is a loan taken out to pay off credit card debts. There are two primary benefits from doing this, the first is to have just one monthly payment as opposed to multiple payments each month to your various creditors, and the second is usually the loan will come with a lower interest rate.
This may seem like a pretty good idea, but its not! The reason being that the vast majority of the time you will need to put up some kind of collateral, thus making it a secured loan; and usually that collateral will be the equity of your property. So in reality what you are doing is changing your low risk unsecured credit card debt into a much higher risk loan secured by your home. This is putting you and your family in a very risky financial position.
The statistics have shown that over 75% of people who use a debt consolidation loan end up right back in credit card debt within five years! The problem is it’s just too easy to get back in debt. Most people make the critical error of not cutting up their credit cards; it becomes especially hard to do when they have no balances anymore.
However this time around in round two versus credit card debt there will be a second secured loan that must take precedence over the new debt balances. Many people in this position have no recourse but to either let their home go into foreclosure or file for bankruptcy; and trust me this happens far more often than you may think and is a nightmare of a situation.
The Good: A lower interest rate and one monthly payment
The Bad: Not actually getting out of debt, places home at further risk of foreclosure, hard to obtain in this bad economy 債務重組 (even for people with homes who may have equity).
The Bottom Line: I strongly recommend against this! It is just simply not a smart financial move to place your house at risk to pay off credit card balances when there are much better methods designed to do so.
The second option on my list is credit counseling; this is because credit counseling has virtually the same benefits as a debt consolidation loan, however is not accompanied with the same risk.
A credit counseling program shares the same benefits of one monthly payment and lower interest rates. In addition you can get out of debt in a much faster period of time than just paying monthly minimum payments or paying back on a loan. With a credit counseling program you will have a fixed payment throughout the duration of the program. A fixed payment with lower interest will help consumers pay off their debt typically within 4-6 years. Most consumers when its all said and done will have paid out around 125-150% of what they currently owe today, plus whatever fees the credit counseling company charges.