Credit Counseling Can Help Those Seeking to Get Out of Debt with Credit Card Solutions
Get Out of Debt: Repaying Credit Card & Medical Bills
If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income,
your debts are a serious problem requiring action. Here are some basic alternatives
to get out of debt caused by excessive credit card usage or unexpected and expensive
medical bills:
- Credit Counseling
- The Do It Yourself Approach
- Debt Management Program
- Debt Consolidation
- Bankruptcy
Credit Counseling
Many people think of Credit Counseling along the same lines as Debt Management or
Debt Consolidation, but it’s much more than that. Credit Counseling is about education,
making informed decisions, planning for your future, and having a plan that is based
on your individual situation.
You can get started online or call InCharge directly. When you call a certified
credit counselor, this professional will ask you a series of questions in order
to identify the root cause of your financial distress. Before they can recommend
a solution to your problem, they must have a thorough understanding of your debt
situation. Next, the counselor will conduct a financial analysis by completing a
monthly spending plan and budget. This will provide an insight into how much money
you are spending each month versus your total monthly income and help determine
which solution meets your individual needs.
The Do It Yourself Approach
After conducting your financial analysis and budget, your counselor might suggest
the do-it-yourself approach, which will include completing self-help educational
programs on budgeting, money management, and credit. By going it alone, you may
be negotiating with your creditors, paying off debts with the highest interest rates
first, obtaining a second job and cutting up your credit cards. While this way is
certainly very effective, it is important to note that this requires strong will
and self-discipline to follow this approach through completion.
When negotiating with creditors, you will find that some are willing to negotiate
lower payments or interest rates, or waive late charges and other fees, because
they realize that it’s better to receive some of the money owed than none of it.
But you will have to ask yourself if you have the ability and temperament to conduct
difficult, time-consuming negotiations alone.
Debt Management Program (DMP)
The credit counselor may suggest a Debt Management Program, in which the counselor
works directly with creditors on your behalf as well as provide you with additional
education, guidance, and motivation to make sure you stick with your plan and pay
down your debt. You will send a single payment each month to InCharge, and we then
pay the appropriate amount to each creditor, on-time and consistently.
While debt management services may save you money by working with creditors to lower
interest rates, they typically do not negotiate with creditors to pay less than
the total principal amount owed. This is often referred to as debt settlement and
is rarely an option recommended by a certified credit counselor except in very unique
situations.
Debt Consolidation
In a typical debt consolidation, you consolidate your existing debts and mortgage
payment into one, larger mortgage payment, sometimes at a lower interest rate. You
take out a loan, often using your home as collateral, the lender sends you a check
and you pay off your creditors. But don’t fall behind—you could lose your home!
If you have a habit of buying on credit and carrying large balances on your credit
cards, debt consolidation won’t fix your underlying spending problem. Also, you
remain solely responsible for paying your own bills and negotiating with creditors.
Bankruptcy
Filing for bankruptcy should only be considered as an absolute last resort. Bankruptcy
is a court action that stops lawsuits and any other attempts by creditors or collection
agencies to collect from you. However, it comes with a high cost—it generally stays
on your credit report for a full 10 years, causing extreme difficulty in using credit
to obtain cars, home or other loans and can even restrict you from certain types
of employment. Bankruptcy should never be thought of as a “quick” or “free” way
to get out of debt, as it can completely destroy your credit worthiness for a very
long time.
Chapter 7 Bankruptcy discharges virtually all of your consumer debts but does not
eliminate secured debt, so you could still lose your home if you fall behind in
your mortgage payments. You also will be required to pay such debts as student loans,
alimony, child support, income taxes, and legal fines.
Chapter 13 Bankruptcy is used in special situations, primarily to allow the filer
to keep his/her home. A court-appointed trustee oversees a strict repayment plan
to pay off your debts during a period of three to five years.
Although bankruptcy may fix your short-term problems, because it stays on your credit
report for so long it should only be used in extreme situations. Many people who
file bankruptcy make the mistake of doing so without fully exploring their options,
and never realize they have other, more viable choices that will allow them to preserve
their credit standing.
Bottom line:
Know that you have options for getting out of debt, and explore them fully. The
key is finding the right solution for you.
Other Options
The alternatives mentioned above are only some of the possible solutions to reduce
or eliminate debt. Unfortunately, the best way to discover the most effective way
to get help is not through reading a book or an article, but by obtaining assistance
from someone trained in handling difficult debt problems. That is why it is critical
that if you are suffering from overwhelming debt that you contact a certified credit
counselor right away. By working one-on-one with a counselor, you’ll be able to
determine the best plan that addresses your concerns and is the most appropriate
solution for your situation.
Everyone at InCharge Debt Solutions hopes you find the help you are looking for.
We stand ready to help you discover the solution that is right for you.
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