Reducing Consumer Debt: Balancing Results with Consequences Debt Consolidation

Reducing Consumer Debt: Balancing Results with Consequences

February 8th, 2010 Admin Leave a comment Go to comments

Consumers appear to be learning some lessons about buying now and paying later. BusinessWeek reports that US consumer debt decreased for the 11th consecutive month during December. If you’re ready to eliminate your debt, it can be tempting to respond to advertisements and solicitations offering “instant debt relief,” “credit repair” and to “settle your debts for pennies on the dollar.” Carefully evaluating your situation and potential solutions can help with avoiding scams and decisions that can have long term consequences. Here’s a rundown of debt management options:

Balance transfers: If you have several credit card balances, review the terms of each account and identify the annual percentage rates (APR) from highest to lowest. The highest APR debts are costing you the most. Transferring credit card balances from high APR cards to lower APRs can reduce the number of payments you make, but read the fine print concerning transfer fees. Balance transfers can work if you have several small debts and one low APR card with a higher credit line. If you have good credit, you may qualify for balance transfers at low or no interest for an initial period. Ideally, you’ll pay off balances transferred before the APR increases. Consumer Credit Counseling and Debt Consolidation: Certified credit counseling services can help withformulating a cash based budget and negotiating affordable repayment with your creditors. When your creditors approve a plan, you ‘ll pay a specified amount to your credit counseling service, and they pay your creditors. Fees for credit counseling vary; non profit services typically determine cost based on ability to pay. Debt Settlement: If you’re facing a large amount of credit card debt that you cannot pay, debt settlement companies may offer a solution just one step ahead of filing bankruptcy. These companies attempt to negotiate settlement of debts that are several months past due and have no hope of being paid. Debt settlement companies may instruct clients to stop paying their debts and to save the money toward paying the negotiated settlement amount. Bankruptcy: If you have no hope of repaying your debt, bankruptcy is an option of last resort. It’s important to understand that although reducing or eliminating debt can bring financial relief, bankruptcy severely damages your credit standing and remains on your credit reports for 7 to 10 years. This can impact your ability to find work, qualify for future credit, and can raise your insurance costs.

Before deciding on debt management options, it’s a good idea to talk with a financial advisor who isn’t selling debt relief services. This can help you find a debt relief plan that best meets your circumstances.

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