Your Debt – Should You Consolidate Or Eliminate?

Credit card debt is at an all-time high, delinquency rates are skyrocketing and thousands of people are losing their jobs to outsourcing every day. If you’re at the end of your rope, and ready to throw in the towel regarding your financial struggles, you can be sure you’re not alone. Unfortunately, many people are faced with these same problems, and are finding this situation to be intimidating and unpredictable due to their uncertain futures. If your credit accounts are delinquent, or you’re barely making ends meet attempting to keep your accounts current, you can take comfort in knowing that there are options available to assist you in getting control of your finances.

•Credit Counseling – Upon signing up for a credit counseling service, the company you’ve chosen will contact your various creditors to work out a repayment plan. At that time you will be required to make one monthly payment to the credit counseling service, and they will in turn distribute your funds to your various creditors. Prior to committing to the services of a consumer credit counseling service, please take the time to do your homework to ensure that the firm, with which you’ve signed up, is not funded by your creditors, as many are. This leaves the average consumer wondering whether or not the consumer credit counseling service is really interested in what’s best for them, as opposed to looking out for the best interest of their creditors. Also, please know that many of these firms claim to be “non- profit” organizations; this doesn’t necessarily mean that their services are free, or even affordable. In fact, some of these firms aren’t even legitimate. As with everything related to your current financial situation, conduct the proper research to be certain this is the right path for you, as entering into a credit counseling agreement can take longer than five years to complete and you’ll still be liable to pay off the entire amount of your debt, plus interest.

•Debt Consolidation – This route is best used by individuals who have sufficient equity in their homes in order to obtain the required funding, through a home equity line of credit or second mortgage, to pay off all of their credit card debt, and still have some amount of equity available for potential emergencies. Obtaining a second mortgage may enable you to reduce the amount of interest you’re now paying on your credit cards; however it’s important to be extremely cautious when considering using your home as collateral. You see, you do run the risk of losing your home if you’re unable to make the required monthly payments on your home equity loan at any time in the future, due to unforeseen circumstances. It’s also crucial to shop around because the cost of a home equity loan can be significant if you’re required to pay points. When you take a closer look at the bottom line, you’ll want to see that you’re ahead of the “credit game” and not just inching by.

•Bankruptcy – In most cases bankruptcy is used as a last resort because this option is a matter of public record and its consequences are long lasting. As you may know there are two types of bankruptcy – Chapter 7 and Chapter 13. Chapter 7 Bankruptcy is known as “straight bankruptcy” due to the fact that your debts are discharged and no repayment plan is required. Because of the bankruptcy law that became effective in October 2005, however, many individuals have found that they’re no longer eligible for Chapter 7 and instead must file Chapter 13 Bankruptcy. Chapter 13 Bankruptcy requires a court approved repayment plan – usually over a period of five years or so. After all of your payments have been made, you will then receive a discharge of debts. The new bankruptcy law also requires that bankruptcy filers obtain credit counseling from a government approved organization six months prior to filing for either type of bankruptcy relief. If you must file bankruptcy, it’s very important to hire an attorney with whom you’re comfortable. Don’t be afraid to network a little bit and ask around; chances are you’ll run into somebody who has previously filed bankruptcy and is more than happy to recommend an excellent attorney.

•Debt Settlement – Debt settlement is a process whereby most creditors will agree to accept less than the full balance of an account as payment in full. Debt settlement has been the proverbial lifeboat for many individuals and businesses that otherwise would have had no choice other than to file for bankruptcy. If you’re considering debt settlement, be sure to speak with at least three firms to determine how each operates and which of their plans best meets your needs. There are many debt settlement companies who work on a contingency basis, and do not require any up-front or monthly maintenance fees. Whichever firm you choose to represent you, take the time to be certain that your financial health is their number one priority. When you speak with them, make sure that all of your questions are answered to your satisfaction, and that you have a clear understanding of the costs and procedures of their debt settlement program.

Congratulations on your proactive stance and taking the time to look into the resources that will help you achieve a debt-free lifestyle. What’s most important is choosing the path that best meets your needs.