Today, consumer debt has reached record levels.
Credit card debt, specifically, has grown to the point that the average American family carries more than $8,000. in credit card debt.
How can monthly payments on $8,000. add up?
An $8,000. credit card debt, at an interest rate of 18%, paying the monthly minimum, can take more than 25 years to pay off at a total cost of more than $24,000!
And, credit card debt is just the start. There are many other forms of unsecured debt that can escalate quickly. Unsecured personal loans, medical bills, gas cards, department store cards, overdue rent, utilities, and many other debts can mushroom to serious levels.
Add to the above debt, secured debts such as mortgages, auto loans, student loans, and other debts and the situation becomes even more unbearable. In the face of all this, a sudden reduction or loss in income or a disability can lead to major financial crisis and constant stress.
If your debts have become a serious problem for you, one of the most important things for you to know is that you are not alone.
CreditLearningCenter.com recommends that you seek the advice and counsel of accredited professionals to evaluate your own personal situation. While the following information is not intended to be complete and applicable for every situation, it is provided as a basic guideline to assist you to help you learn about some of the debt management options available:
- Talk with your creditors. Whenever you are having a tough time paying creditors, the worse thing to do is avoid the problem and hope it goes away. It won't. Late fees and penalties will add up quickly and soon you will find that your original debt has doubled! This is hard to believe but it happens all too often. Instead, if you are falling behind on your payments, get in touch with your creditors right away. Explain your situation. Most creditors will agree to allow you an alternative payment schedule, even if it means they have to wait longer to be paid, at least they know in advance when they can expect to be paid, and they can save time and money by not having to send your accounts to collections.
- Contact a Credit Counseling Service. These organizations will work closely with you to analyze your financial situation. They can help you develop a realistic repayment plan with your creditors. These plans normally require you to deposit funds each month with the counseling service who will then pay your creditors. Many credit counseling services are non-profit organizations who charge little or provide their services for free. Credit card companies encourage and support the efforts of these organizations as they can help debtors stay afloat, make reduced payments, and avoid bankruptcy. For more information on credit counseling, go to the "Credit Counseling" section of the Credit Action Center.
- Consider a Debt Consolidation Loan. These loans can help you consolidate your high interest debt into one, more manageable loan. Keep in mind, however, that they will require your home as collateral as part of a mortgage refinancing.
- Consider a Debt Settlement Program. A Debt Settlement program typically reduces consumer debt to the lowest possible level, requiring a small monthly payment so that bankruptcy can be avoided.
- Personal Bankruptcy. This is normally your last option in financial crisis, and should only be considered after all other options have been exhausted because the impact of a bankruptcy is long-lasting. While bankruptcy does wipe out many debts completely, it is a public record that will remain on your credit report for 10 years, and can make it hard for you to get future credit, purchase a home, obtain life insurance, or even secure employment. However, bankruptcy is a legal option that has helped many people get a fresh start and free themselves from a mountain of growing financial obligations.
There are two types of bankruptcies: Chapter 7 and Chapter 13. Chapter 7 is a straight bankruptcy and requires a liquidation of all assets that are not exempt. Chapter 13 allows individuals with a regular income to maintain ownership of property, while a court-approved future repayment plan is arranged over a period of 3-5 years. Chapter 7 and Chapter 13 bankruptcies have other requirements and features that should be clearly understood.
Note: Individuals must get credit counseling from a government-approved organization within six months before filing for bankruptcy relief, whether it be Chapter 7 or Chapter 13. You may locate a state-by-state list of government-approved Credit Counseling organizations at www.usdoj.gov/ust.