There have been many significant financial changes for consumers in the past few years, and unfortunately many of them have been unpleasant. One of these changes has been the demise of the housing market and its ripple effects. Aside from the big hit homeowners have taken to their equity positions, another effect has been the loss of their ability to tap into that equity as a source of needed funds. Many homeowners are now "upside-down" in their homes, owing their lenders more than their homes are currently worth. Others have simply lost the ability to refinance due to the tight lending restrictions that are now in place.
Whatever the particular case may be, it is clear that consumers are increasingly turning to their credit cards as a source of funds. Any time that this happens, more and more of them become ensnared by the high interest rates and fees that the credit card companies charge. All it takes is one slip-up in paying the monthly bills and the punitive interest rates can go into effect. Before many of them even realize it, they eventually wind up with a serious unsecured debt problem on their hands. It is an easy trap to fall into, and a difficult one from which to try to free oneself.
There are many reasons why consumers are finding themselves in trouble with their credit card debt. Some simply became accustomed to the seemingly limitless supply of funds available to them during the boom in housing and never adjusted their lifestyles accordingly after the bubble had burst. Others found their incomes shrinking for the first time in memory due to the loss of work hours or unemployment, while still others were struggling for ever-present reasons such as illness or death in the family. The truth is that it doesn't take much of a problem to put you in bad shape when you're paying 29% interest on credit card debt and barely making a dent in your principal balances with your monthly payments.
A good first step toward assessing your situation is to use a credit card debt calculator in order to get a realistic idea about the future projection of your current debt situation. You may, in fact, be looking at a scenario in which you'll be paying off your debt for 20 years or even longer, which effectively may mean the majority of your remaining working life. If you are a member of the growing legion of those who find themselves in this unenviable position, then you need to educate yourself about the debt relief help that is available to consumers who find themselves in need of it.
For those who require some substantial credit card debt relief, the primary debt solutions available are a Consumer Credit Counseling Service (CCCS), Debt Settlement programs and bankruptcy (under either Chapter 7 or Chapter 13). A CCCS is a viable option for those who realistically are in the financial position to repay their debts in full, provided that they will be extended some interest rate relief by their creditors. The CCCS can set the consumer up on a Debt Management Program (DMP) to consolidate their payments and reduce their interest rates. For those whose debt is so large or whose hardship is so severe (or both) that only a significant reduction or elimination of their debt will suffice, then Debt Settlement programs and bankruptcy are the best choices. Both of these choices will cause credit report damage, however bankruptcy's negative effect is the much longer lasting of the two.
In Debt Settlement programs, a negotiator with the Debt Settlement company will establish the consumer's hardship and negotiate with the creditors on their behalf. Typically the debts are settled for 40% to 60% of their original balances as payment in full. But in order for the creditors to be willing to negotiate on the debt, they will need to believe that they may not be getting any money at all from the borrower due to the imminent possibility of having to declare bankruptcy instead. This will require the consumer to stop making any payments to their creditors on each of the accounts in the Debt Settlement program until the settlements have been reached. Instead, the consumer will begin making a consolidated monthly payment to the Debt Settlement company. The company will accumulate funds for the consumer in a trust account until enough money is available to settle an account, and they will obtain the settlement offer in writing from the creditor before any funds are disbursed to them. Each account will be settled one by one until all the enrolled debt is paid off. By settling the debts in this way, the consumer can normally become completely debt-free in just two to four years.
Reputable Debt Settlement programs/companies should also provide assistance with collection phone calls and written correspondence from the creditors. The company will intervene on your behalf and handle all future communications with your creditors for as long as you're in the program. They will be helpful in minimizing the harassment that typically accompanies the non-payment of creditors, and they will notify the creditors in writing that they must stop making phone calls to the consumer (known as cease and desist orders) according to the Fair Debt Collection Practices Act. The creditor will then become liable for paying fines for each future call to the consumer.
To get a better idea of how the numbers will look in typical Debt Settlement programs, let's look at an example. Let's say that Bob has $20,000 of unsecured debt from 5 different credit card accounts, and that he is only able to make the minimum monthly payments on each account. His average interest rate on this debt is about 18%. If Bob continues to do what he is currently doing, it will take him about 30 years to pay off his debt. In contrast, by enrolling his debt in a Debt Settlement program, he can cut his monthly payment in half and become completely debt-free in about 3 years. Clearly, this is a very effective means to become debt-free in a comparatively short period of time.
Bankruptcy is usually recommended as a solution of last resort for consumers in circumstances in which none of the other debt relief solutions available will bring about sufficient debt relief. The reason that it is recommended as a last resort is because of the dire consequences to the consumer's credit that will follow. These consequences usually preclude the consumer from obtaining credit for at least 7 to 10 years following the bankruptcy, and may also negatively impact their ability to find employment. In terms of actual debt relief, a Chapter 7 bankruptcy allows the consumer to discharge their debts in full, however in order for them to qualify there is a new "means test" that must now be passed, as well as other new requirements. This means test is part of the 2005 bankruptcy law reforms that were intended to force more bankruptcy consumers to file under Chapter 13 bankruptcy. Under the terms of a Chapter 13 bankruptcy, the consumer is required to enter a repayment plan lasting up to 5 years.
To get additional information on debt settlement and other credit card debt solutions, get in touch with an experienced debt counselor. A reputable debt settlement company can simplify the overall process of negotiating credit card debt.
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