Learn How to Climb to Debt Freedom
“Credit assistance” has several different meanings. The most popular use of the phrase is synonymous with credit counseling, a form of debt relief for consumers facing a mountain of distress-causing debt. However, credit counseling is not your only option.
When a mountain climber wants to summit a peak, she first learns all she can about the mountain and the different paths she can follow to succeed. You need to do the same with your debt. Your first stop is the Bills.com Debt Coach. Debt Coach is a no-cost, no-nonsense tool into which you enter your debts, goals, and other basic information. There’s even a short-cut to help you get to the best part about Debt Coach — the recommendations. Debt Coach does not tell you what to do, but instead shows you the monthly and total cost of each path to debt freedom.
No two mountain climbers are alike, and have different levels of strength and ability. Knocking down a mountain of debt is somewhat the same. As Debt Coach explains, which debt resolution path you choose depends on your:
- Amount of debt
- Type of debt
- Monthly fixed expenses
- Available income
- Property you own
- Sensitivity to harming your credit score
- Willingness to resolve your debt aggressively
Here’s a quick mapping of common debt resolution options.
A five-year plan for people who can afford to pay about 3% of their current total debt balance each month. The entire balance of enrolled debts are paid. Positives are no calls from creditors, and if done carefully, a less-dramatic impact on a person’s credit score. However, “less dramatic” is relative. Proponents of credit counseling tend to undersell the real-world impact credit counseling has on credit scores.
In mountain-climbing terms, credit counseling’s length and expense make it a long, steep, uneventful hike for strong climbers.
An aggressive, 12 to 36-month program that almost always has lower monthly payments than credit counseling. People in debt settlement stop paying their creditors, and instead pay monthly amounts into a special bank account. Over time, the debt settlement partner negotiates settlements for enrolled accounts at less than the balance due. Positives to debt settlement are the low monthly cost and quick time to debt freedom. The negatives can be daunting for some: Calls from creditors who seek to pull people away from debt settlement and return them to making their monthly minimum payments. A person’s credit score will be harmed for the duration of the plan. Also, some hard-nosed creditors threaten lawsuits to people enrolled in debt settlement.
If debt settlement were mountain climbing, it would be a shorter, easier climb than credit counseling, but with the chance of finding drama-seeking creditors along the way.
If a person passes the chapter 7 means test, all qualified debts can be canceled in a discharge six months to a year after filing. If a person does not pass the means test, she is enrolled in a chapter 13 bankruptcy, which is a five-year repayment plan the debtor can afford. At the end of five years, any remaining debts may be canceled. Bankruptcy removes personal liability for mortgage and other loans.
The best comparison one can make between mountain climbing and chapter 7 bankruptcy is bungee jumping: The ride is quick and a little scary. Chapter 13 is an easy, five-year climb while someone in a Jeep (the bankruptcy trustee) follows along behind you to make sure you follow the marked trail to the very end.
Debt consolidation loans can be in the form of personal loans or a mortgage refinance. You need a high credit score for most consolidation loans, which can be akin to scaling a cliff for some. A consolidation loan can be a wonderful or a terrible idea, depending on your circumstances. Consolidation loans are wonderful solutions for one-time events. A consolidation loan is a terrible idea if the person uses it as solution to chronic over-spending.
A debt consolidation loan is a smooth gondola ride to the summit — if you have the credit rating to afford a ticket.
A mountain climber does not just wake up one morning and decide she will hike to the top of the nearest mountain. It takes planning, and a little bit of work every day to make it to the top. Debt Coach can help you decide which paths are available to you. It is up to you to chose your best path, and following through each day with your plan to reach the top.
Other Forms of Consumer Credit Assistance
Consumer credit assistance means different things to different people. Here are two other definitions of consumer credit assistance.
Tax Credit Assistance: The Dept. of Housing and Urban Development operates the Tax Credit Assistance Program (TCAP), which provides grants for developing low-income housing. State agencies distribute the funding to eligible applicants. Contact your state government’s TCAP administrator to learn more about low-income housing development in your state.
Credit Assistance and Foreclosure Prevention: Under some state laws, it it illegal to charge an up-front fee for advice and assistance in avoiding foreclosure. If you are attempting to avoid foreclosure and have been contacted by someone offering credit assistance, consult with your state attorney general’s office to learn the foreclosure prevention rules in your state.