1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair
Isaac).
2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% -
30%!
3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.
Debt Counseling Help
It’s hard enough being in debt without having to worry about
choosing the right debt help product. You do not need a finance
degree to understand the different options. Here is a quick
guide. Debt counseling agencies help you negotiate a payment
schedule with your creditors. This can lower your monthly
payments by spreading them out over a longer period of time. You
usually have to pay a one-off enrollment fee to the agency, plus
a monthly fee. This may be a good option if you do not qualify
for a debt consolidation loan.
Debt consolidation
With debt consolidation, you take out a new loan to cover all
of your smaller, high interest debts like credit cards and car
payments. You use that money to settle the debts and are left
with one monthly payment. The interest rate on the debt
consolidation loan is lower than on the smaller debts, which
means that you can pay it off sooner. The interest rate will
depend on the amount you need to borrow, the duration of the
loan and your credit history.
Home equity loan
If you own your home, you can use it to secure a
home equity loan.
With a home equity loan, your house is used as collateral. You
can get this type of loan from a large bank or from a smaller
lender. This is a good option if you need to borrow a large
amount of money. However, if you do not keep up with repayments,
the lender may foreclose on your home, leaving you with nowhere
to live.
Video: Calculating a Home Equity Line of
Credit (HELOC)
Tax consultation
If your debts include unpaid taxes, a tax consultant can help
you make sense of all of the complicated tax laws. They can also
negotiate with the IRS on your behalf. A
tax consultation
can costs hundreds, or even thousands, of dollars. However, most
consultants will give you a free no-obligation quote so you know
in advance how much you will have to pay.
Bankruptcy
Bankruptcy is usually the last resort for people in extreme
financial distress. If debt collectors are knocking on your
door, and you have no way to pay them, bankruptcy may be the
best way to get some respite. By
filing for bankruptcy,
you can reduce or even eliminate certain debts through the
courts. However, it is not a panacea. Certain debts cannot be
erased. If you file for bankruptcy, this information will stay
on the credit report for 7 – 10 years. This will make it very
difficult for you to get any type of credit during this time,
even if you’re solvent. It is not a decision to be taken
lightly.
Video: Before you file for bankruptcy,
consider a credit counseling agency
Credit card balance transfer
If you have a good credit score, but you carry a large
balance on a high-interest credit card, you can transfer that
debt to a low-interest card. Some credit cards have an APR as
low as 0%, though you may have to pay a balance transfer fee of
around 3%. This can save you hundreds of dollars in interest
payments.
Debt Settlement
Debt settlement is similar to debt counseling. In both cases,
the agency will negotiate with your creditors on your behalf.
The difference is that with debt settlement, you stop making
payments to the creditors. Instead, you give that money to the
agency, which puts it into an account for you. By missing
payments, you lower your credit score. Once the score is
sufficiently low, the agency will approach the creditors with a
payment offer that is significantly lower than the amount you
owe. By that point you will be considered a very high-risk
borrower. The creditors will be more likely to accept the low
payment offer for fear that you may default on your loans
completely. Taking this route greatly damages your credit score
for years to come.
Additional Resources
Hoffman, Brinker and Roberts
586-247-3158
National Foundation for Debt Counseling
800-388-2227
Discover More card – 0% APR on balance transfers
877-587-1605
It’s hard enough being in debt without having to worry about
choosing the right debt help product. You do not need a finance
degree to understand the different options. Here is a quick
guide. Debt counseling agencies help you negotiate a payment
schedule with your creditors. This can lower your monthly
payments by spreading them out over a longer period of time. You
usually have to pay a one-off enrollment fee to the agency, plus
a monthly fee. This may be a good option if you do not qualify
for a debt consolidation loan.
