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$130000 Credit Card Debt - The Bills.com Blog
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$130000 Credit Card Debt
Friday, Feb 5, 2010
Question: My income is $350,000 per year and my mortgage is roughly $8,000/month. Several years ago, when I was out of work for an extended period of time, I relied to large extent on my credit cards which have now swelled to $130,000 at an extremely high rate (20-29%), making paying them down almost impossible. I do not want to default and I would prefer to take a loan out to pay off the cards in full but at a more manageable rate. I would imagine that a 7 year loan at 11-12% would cut my payments in half and enable me to pay off the loans in full -- neither of which I can do at the current rates. I do not have enough equity left in my home to take out a home equity loan, so I am worried that there is no real way out. Please advise on options.
Answer: Whether a consumer has a $1,300, or $13,000 or $130,000 credit card debt, the underlying issues are the same if the debt is causing financial distress.The four primary concerns for most consumers for resolving debt are: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the resolution program. Be sure to evaluate each program relative to your prioritization of these factors.
Since there are a variety of debt resolution options, including credit counseling, debt negotiation/debt settlement, a debt consolidation loan, bankruptcy, and other debt resolution options, it is important to understand each option and then pick the solution that is right for you in your circumstances.
Credit Counseling
Credit counseling, or signing up for a debt management plan (DMP), is a common form of debt resolution. There are many companies offering credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to the credit card companies. A credit counseling agency may be able to lower monthly payments by getting interest rate concessions from the creditors.
It is important to understand that in a credit counseling program, you are still repaying 100% of your debts -- but with lower monthly payments. On average, most credit counseling programs take five years to complete. While most credit counseling programs do not impact a FICO score, being enrolled in a credit counseling debt management plan does show up on a credit report, and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 bankruptcy -- or using a third party to re-organize your debts.
Debt Settlement
Debt settlement, also called debt negotiation, is a form of debt resolution that cuts the consumer's total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically take three years to complete. It is important
to keep in mind, however, that during the life of a debt settlement program, you are not paying your creditors. This means that a debt settlement solution of debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of the debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 bankruptcy. The trade-off is a negative credit rating versus saving money.
Debt Consolidation Loan
Many people think first of a debt consolidation loan when seeking debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt.
Shifting unsecured debt to secured debt can create a volatile situation. If there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30-year loan, which means that the total cost and the time to debt freedom could be very high, but the monthly payment will be lower than other options and there is no credit rating impact.
Bankruptcy
Bankruptcy may also solve your credit card debt problem. A Chapter 7 bankruptcy is a traditional liquidation of assets and liabilities, and is usually considered a last resort. Since bankruptcy reform went into effect in 2005, it is much harder to file for bankruptcy. If you are considering bankruptcy, I encourage you to consult with an attorney in your state who has experience in bankruptcy.
Default
You may be curious what may happen if you do nothing. If you stop paying your credit card debt, creditors have the right to collect the debt. First, you will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.
Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls
Debt Consolidation Loan
Many people think first of a debt consolidation loan when seeking debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt.
Shifting unsecured debt to secured debt can create a volatile situation. If there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30-year loan, which means that the total cost and the time to debt freedom could be very high, but the monthly payment will be lower than other options and there is no credit rating impact.
Bankruptcy
Bankruptcy may also solve your credit card debt problem. A Chapter 7 bankruptcy is a traditional liquidation of assets and liabilities, and is usually considered a last resort. Since bankruptcy reform went into effect in 2005, it is much harder to file for bankruptcy. If you are considering bankruptcy, I encourage you to consult with an attorney in your state who has experience in bankruptcy.
Default
You may be curious what may happen if you do nothing. If you stop paying your credit card debt, creditors have the right to collect the debt. First, you will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.
Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls
become more persistent, or even threatening. Thankfully, the Fair Debt Collections Practices Act has rules governing the behavior of collection agents. However, unscrupulous debt collection agents do not follow these rules.
In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against the debtor. This is not a frequent occurrence, but it is within a creditor's rights and a possibility about which you should be aware. If one of your creditors sues you, the court will likely issue a judgment in the creditor’s favor. Depending on your state's laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, place a lien on your property, or take other action to enforce its judgment.
Regarding a credit report, default damages a credit score severely. In addition, default is a warning flag for many lenders, who will refuse to deal with a potential customer with a default on their record. As a result doing nothing and allowing default without resolution is a poor option for most consumers.
Summary
Although there are many forms of debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation option that fits for you.
Lastly, here are some fast tips for your own quick credit card debt consolidation evaluator:
1. If you have perfect credit and have equity in your home -- consider a Mortgage Refinance.
2. If you can afford a healthy monthly payment (about 3 percent of your total debt each month) and you want to protect yourself from collection and from going delinquent -- consider Credit Counseling.
3. If you want the lowest monthly payment and want to get debt free for a low cost and short amount of time, AND you are willing to deal with adverse credit impacts and collections -- then evaluate Debt Settlement.
4. If you cannot afford anything in a monthly payment (less than 1.5 percent of your total debt each month) -- consider Bankruptcy to see if Chapter 7 might be right for you.
Bills.com makes it easy for you to apply for traditional forms of debt relief .
I hope this information helps you Find. Learn & Save.
Best,
Bill
www.bills.com/blog/
In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against the debtor. This is not a frequent occurrence, but it is within a creditor's rights and a possibility about which you should be aware. If one of your creditors sues you, the court will likely issue a judgment in the creditor’s favor. Depending on your state's laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, place a lien on your property, or take other action to enforce its judgment.
Regarding a credit report, default damages a credit score severely. In addition, default is a warning flag for many lenders, who will refuse to deal with a potential customer with a default on their record. As a result doing nothing and allowing default without resolution is a poor option for most consumers.
Summary
Although there are many forms of debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation option that fits for you.
Lastly, here are some fast tips for your own quick credit card debt consolidation evaluator:
1. If you have perfect credit and have equity in your home -- consider a Mortgage Refinance.
2. If you can afford a healthy monthly payment (about 3 percent of your total debt each month) and you want to protect yourself from collection and from going delinquent -- consider Credit Counseling.
3. If you want the lowest monthly payment and want to get debt free for a low cost and short amount of time, AND you are willing to deal with adverse credit impacts and collections -- then evaluate Debt Settlement.
4. If you cannot afford anything in a monthly payment (less than 1.5 percent of your total debt each month) -- consider Bankruptcy to see if Chapter 7 might be right for you.
Bills.com makes it easy for you to apply for traditional forms of debt relief .
I hope this information helps you Find. Learn & Save.
Best,
Bill
www.bills.com/blog/
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