When faced with too much credit card and other unsecured debts, you really have only a few options.
Here's some tips how to determine your best option?
I'm talking about credit card debt as well as other unsecured debts such as:
- Personal loans
- Private student loans
- Store cards
- Medical bills
Next to a very large consolidation loan (personal or home equity type), borrowing money from family and friends, withdrawing money from your 401(K) or other retirement plans, you really only have 3 basic options.
- Debt Management (or in some cases using a Snowball Debt Reduction Plan)
- Debt Settlement
Notice I didn't mention using the creditor's offer of a Hardship Plan as this is only a temporary, short term fix, that only delays the inevitable repayment of the debt!
And also notice that I didn't mention the so called "Pay-Day" loans. Stay clear of those at all costs!!!
Do you qualify for a Debt Management Program?
If you are only able to make the minimum payments required of all of your credit cards and other unsecured debts, you should know by now that it may take you many years (anywhere from 10-15, depending on which article your read) and 3-4 times the original amount borrowed to repay those debts!
If you enroll in a Debt Management Program (formerly and sometimes still referred to as a Credit Counseling Program), here's what usually happens:
The Debt Management Company will contact each of your creditors. Most of the hundreds upon hundreds of creditors usually have an agreement with Debt Management Companies to:
- Lower or eliminate interest rates
- Forgive or reduce late or over-the-limit fees
- Re-Age your account (make it look like it you are not behind on payments)
You will make ONE MONTHLY PAYMENT to the Debt Management Company. Although some of the Ads you see or hear seem to say that they can reduce your monthly payment, that is not usually the case.
Credit card companies figured out many years ago that they could make more money by NOT HAVING THE CONSUMER PAY OFF THE CARDS! That's right, the credit card industry actually makes more profit from late fees, over-limit-fees, annual fees and low minimum monthly payment requirements, than they do on the high interest rates they charge.
For some shocking insight into what credit cards companies are doing, click here.
I don't want to get lost in the various calculation methods the credit card companies use to calculate the minimum monthly payment, but most credit card companies only charge 2% of the balance/12.
In most Debt Management Programs, the total or single monthly payment you will be required to make is about 2.7%. This includes the payment to the Debt Management Company. Did you really think they worked for free because they are incorporated as a "non-profit"?
Example: Let's say you have a total of $20,000 of credit card debt. (BTW...the average consumer has 8 cards with an average total balance of $9,000!)
$20,000 x 2% = $400 minimum monthly payment required now
In a Debt Management Program, $20,000 x 2.7% = $540 per month or $140 more!!!
If you are barely making the minimum payments now, how can you increase it by $140?
But before I move on to the second option, if you could make increase your monthly payments each month, why not check out a SNOWBALL DEBT REDUCTION PLAN?
A Snowball Debt Reduction Plan is a great way to reduce your debts more quickly and avoid paying the cost to a Debt Management Company.
However, not everyone has the discipline to set up, monitor and track a Snowball Debt Reduction Plan. If you're like this, maybe you could use a little help...
But what if you don't have any extra money at the end of the month? In fact, you are not making the minimum payments and some or all of your accounts are "past-due" or in collections?
Then you should consider a Debt Settlement Program.
Or, perhaps you have fallen behind because of:
- Small fixed retirement income
- Death of spouse or partner
- Too little income...too much debt!
A Debt Settlement Program may be just what you need!
- One monthly payment (customized to fit your existing budget)
- Most debts will eventually be settled for 50% or more
- Avoid seeking bankruptcy
- Become DEBT FREE in 36-48 months
Want a complete overview? Download our FREE BOOKLET:
What about Bankruptcy?
If your financial situation is such that you not only cannot afford extra payments required of a Debt Management Program, a Snowball Debt Reduction Plan or a Debt Settlement Program, then you need to consult an attorney about BANKRUPTCY.
There are differing opinions about bankruptcy, but regardless, if you have accumulated so much debt that realistically you will never be able to repay, you owe it to yourself to check out your bankruptcy options.