Alternative Methods of Debt Relief

Paying the minimum:

Paying only the minimum required payment on revolving interest rate credit cards is a trap that millions of Americans fall into every month. Only 1-4% of your minimum monthly payment goes toward the principal balance. This means that you must pay 4% of the total balance just to maintain that balance. At this rate it could take upwards of 35 years to pay off the balance and could cost you up to $100,000. In addition, your interest rates could be raised as high as 32% if you are late on just one payment or go over your maximum spending limit. As you see above this is the most expensive and timely option.

Home Refinance/Home Equity:

Taking out a home equity loan or refinancing an existing mortgage may work well for clients with substantial equity in their home. Home equity loans typically offer lower interest rates and one simple monthly payment. However, monthly payments may still be too high for some consumers and many may not even qualify for the loan. Converting unsecured debt into secured debt via a home or car can be detrimental if you cannot pay your bills. If you default, the creditor can take away your property to resolve the unpaid debt. Also consider the fact that your total debt will not be reduced and you will be paying interest on this debt for 15 to 30 years.

Debt Management Plans

Debt Management Plans, which are often called DMPs, are plans that allow debt relief providers to work directly with creditors to secure benefits. These benefits, which vary by creditor, typically include reduced interest rates, lower monthly payments and waived fees such as late fees and over the limit fees. If the DMP works within your budget, you may find this to be your first and best option. Learn more about a Debt Management Plan.

Learn more about a Debt Management Plan

Bankruptcy:

Bankruptcy enables consumers to potentially get out of their debt burdens. It also comes with the highest financial and emotional price. Bankruptcy impacts your credit for 7-10 years and stays in court records for 20 years. The long-term effect of higher rates can greatly outweigh the shorter-term impact of filing bankruptcy. Bankruptcy filing could easily be uncovered each time one applies for credit, whether it is for a home, car or insurance. For more information check out www.uscourts.gov/bankruptcycourts.html