Debt Relief Information to Help You if You Have Bad Credit and Need Debt Help
Boot Camp for Debt Part 3: Bad Credit Debt Relief Options
If your credit rating is NOT good, you have fewer options. However, that does not make it any less important for you to know your options. In fact, it makes it more important.
Debt Elimination- This is a total scam. The same people who tell you that you don't have to pay the IRS have surfaced telling people that the credit card debt they carry need not be paid back at all and can be eliminated. They say that the debts are not collectible because only the government is allowed to create money and that the Credit Card companies created money when they granted you a credit line. They want you to believe that when you bought the big screen TV at Circuit City, using your credit card, that you did not incur a debt, but that the debt is between the Credit Card Company and Circuit City. RUN AWAY FROM DEBT ELIMINATION.
Payday Loans. It is not a surprise that vulnerable people are easily taken advantage of. Payday loans are a classic example. They charge interest rates high enough to make your head spin, sometimes more than 1000% per year. They suck you in and, if you fall behind, it is almost impossible to catch up. Avoid Payday Loans, if at all possible.
Consumer Credit Counseling. If your credit card debt is getting the best of you, a credit counseling program can possibly help you. After you complete a budget review with your personal credit counselor, he or she may recommend a Debt Management Plan. A Debt Management Plan may help you get lower interest rates and get rid of late fees while making just one payment. You could have a lower monthly payment than you do currently, but it will likely not be dramatically lower than your current credit card minimum payments. Most credit counseling programs will demand a minimum monthly payment of 2.5-3.5% of your credit card balances (or about $300 per month on $10,000 of debt), so you may not see an overall reduction in the monthly required payment, but the lower interest rates will allow you to pay off the debt much faster than if you are repaying the Credit Card companies directly. The notation on your credit report that your accounts are enrolled in a credit counseling program's Debt Management Plan will not lower your credit score, but it will hurt your ability to get loans or credit and the interest rates you pay on any home loan, a refinance, or a car purchase that you obtain will come at a higher rate. Your credit score may drop, due to missed payments that sometime occur at the beginning of a Debt Management Plan, the negative impact on your credit utilization from the requirement to close accounts in the program, and the harm due to your credit from closing accounts you have had open for a long time. Once again, be careful when selecting a credit counseling company as there are good ones and bad ones out there. Search online for any negative information that may be out there and do your due diligence to determine a company's record and history.
Debt Settlement or Debt Negotiation. Debt Settlement offers you a chance to reach a negotiated settlement with your creditors, paying back far less than you currently owe. The monthly payment required in a Debt Settlement program is about half of what a CCC company would require and the programs run much shorter than the average credit counseling plan, usually less than 3 years. Debt Settlement will hurt your credit rating in the short term, because you must choose to go delinquent on your bills. However, because it will get you out of debt more rapidly than any other option aside from Bankruptcy, you can start to rebuild your credit rating sooner. Through Debt Settlement, you will end up in a solid credit position with a lower debt to income before you would even complete the credit counseling program. As always, be careful when choosing a Debt Settlement company as there are good and bad companies out there.
Bankruptcy. Bankruptcy can be the best choice for you, but it should be an option of last resort. It will hurt your credit rating severely and is not a pleasant process to undertake. The long term impact of the higher rates you will be offered after
bankruptcy may outweigh the savings you may see in the short term, when debts are cleared out. After Congress reformed the bankruptcy laws in 2005, it is much harder to qualify for the kind of Bankruptcy that will wipe out all of your debt. It is much likelier you will end up in a long term repayment of a Chapter 13 than it is that you will qualify to discharge. Another negative point of bankruptcy is that few people like being scrutinized in public for not living up to their obligations.
Boot Camp Conclusion
No one solution fits everyone's needs or circumstances. Look carefully at all the options in front of you. Know that there are people who will tell you what they think you want to hear, to separate yourself from your money. If you follow the advice in the 3 Part Boot Camp for Debt, then you can start on the path to defeating your debts.