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Debt Reduction Options
Bankruptcy:
Did you know that over 1 million US
citizens file bankruptcy every year? Enormous individual debt and
pressure from the collection agencies to collect this debt, forces
more and more people to file bankruptcy. If you cave into this pressure
and file bankruptcy nobody wins. The bill collectors receive no
money and your credit is scarred for 10 years. Your bankruptcy discharge
can also appear in public court records for up to 20 years! In addition
bankruptcy can affect you when trying to purchase a home or auto,
finding employment, obtaining insurance or getting security clearance.
Moreover, depending on the type of bankruptcy you file the courts
may force you to pay your creditors anyway! You should only consider
bankruptcy as your last option!
Debt Consolidation Loans:
Debt Consolidation loans do not reduce
the amount you owe, it simply combines all of your debt and attaches
a lower interest rate. All you are doing is exchanging one debt
for another at a lower interest rate. When applying for a debt consolidation
loan you typically will be asked to secure the loan against some
form of asset (collateral), usually a house or car. This transfers
your unsecured debt to a secured loan, which puts your personal
possessions at risk if you fail to make payments. These loans also
extend the period of time it will take to get out of debt. A home
equity loan can be spread out over 30 years!
Statistics show
that 80% of people who apply for a debt consolidation loan find
themselves digging into deeper debt. The majority of people who
enter a debt consolidation loan program neglect to cancel their
credit cards after they have been paid off so they tend to use them
again and get right back into debt problems. 65% of people who use
debt consolidation loans will go over their credit card limits again
which means that not only do they have to pay back the consolidation
loan they have new credit card debts to worry about! Unfortunately
those people have just doubled their debts.
Credit Counseling:
Although they claim non-profit status,
Credit counseling programs similarly work like a collection agency.
Credit Counselors work on behalf of the creditors who pay them a
% of the amount they collect for the creditors and in some cases
they are even owned by your original creditors! They can also charge
a monthly fee from $15-$40. Credit counselors work with prearranged
figures with creditors to reduce your interest rate and minimum
payments. The average minimum reduction is 8%. Some creditors will
not go below a 20% interest rate and other creditors refuse to participate
in these programs. All of your credit cards will be cancelled and
you will need to pay 100% of the full debt amount, including interest!
These programs are typically time consuming (4-7 years to payoff
creditors) and statistics show that 79 out of 100 people that enroll
in these programs drop out.
Do Nothing:
This apparently is the most common choice for
many consumers and the least effective choice. Unfortunately, most
consumers who chose this option are just avoiding the inevitable:
Your debts eventually have to be taken care of! Choosing to do nothing
does not solve your debt problems. If you continue with this choice,
harassing phone calls and letters from creditors and collection
agencies as well as late and over limit fees will overwhelm you.
This can eventually lead to lawsuits, liens, judgments and garnished
wages. This option is not a reasonable choice!
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