The Creditors Plan
This is the path you are on right now. Continuing to pay the
minimum balances required by your creditors will have you
applying your money towards the interest instead of the principal
for an average of 20-30 years. For every $3,000 in credit
card debt that you have, it will take approximately 6 years
to eliminate the balance. If your interest rate is higher
than 25%, you may never pay them off. For the obvious reasons
just stated, this is the option that benefits the creditors
most.
Debt Management
Created by the creditors themselves, Credit Counseling and
Interest Rate Reduction Programs were designed to recapture
principal that may be at risk due to consumers being over
there heads in debt. Once it has reached a point where consumers
are starting to feel the pressure of their excessively high
interest rates, they can enroll into a Credit Counseling Program
which will provide them with a way out, at the same time,
helping them to better understand their financial situation
to prevent the same thing from ever happening again. By enrolling
into a Debt Management Program, consumers can:
Consolidate all debts into one low monthly
payment
Significantly reduce or in some cases even eliminate their
interest rates
Save thousands of dollars on interest and years of payments
Be debt free in 2 to 5 years, instead of 20 to 30 years
Improve your credit
Home Equity Loan
You can transfer the high interest of your unsecured debt
to a mortgage using you home’s equity. This will reduce
the interest and convert it from compounded interest to simple
interest. However, you must qualify and be a home owner as
well. The negative side to this is that you are now putting
your property at risk by taking your unsecured debt and securitizing
it with your home. Not only that, you are transferring one
20 year loan to another.
Debt Negotiation
This program was designed for consumers who can no longer
afford to pay the minimum monthly payment required by their
creditors. The goal of this program is to negotiate a settlement
on the balances owed to a creditor which would make it advantageous
to the creditor because in most cases the past due accounts
are sold to collection agencies for pennies on the dollar.
With this program consumers can:
- Typically end up paying
40-60% on the dollar
- Pay off their debt in 12-36 months
- Eliminate late fees and interest charges
However, Debt Negotiation will severely impact
your credit if the fact that you have fallen behind on your
accounts, hasn’t already done so. Debt Negotiation does
have inherent risks factors such as sending accounts to collections,
judgments and wage garnishment. This is the last option before
Bankruptcy.
Bankruptcy
Truly a “last resort”. Bankruptcy should be avoided
at all cost. Some of the negatives associated with a bankruptcy:
- Severe negative impact on credit rating
for 7-10 years
- May result in higher interest rate on future
loans
- Can cost up to $3000 to file
- May not qualify with new laws
- Carries a negative stigma, mental stress
and other burdens
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