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Seems we can’t even open a newspaper these days without reading a new horror story about our nation’s mounting economic troubles. With the stock market in free fall and our real estate markets in disarray, the monumental financial troubles seem unlikely to end any time soon, and, as you would expect, the ordinary citizens shall feel the brunt of the crisis. Of course, American consumers are not without their own share of blame. For too long, we have allowed credit card debt to control our lives and ignored personal financial burdens even as they crippled our own opportunities. By foolishly amassing so many debts that have taken up such a large percentage of earnings, most household budgets have not had the freedom to indulge savings and put the American economy at even greater risk. It is past time, as a nation, to unclock the shackles of credit card debt and attempt to seek out some alternative to the untold millions the United States consoumers now owe the multinational credit card conglomerates. In this article, we hope to clear up some of the confusion surrounding credit card debts, and offer some tips of advice on how to best eliminate the debts from all of our own lives. After existing with these financial burdens for years upon years, it may seem inconceivable that the credit card debts could be dissipated no matter how strenulously you work against the bills – and, make no mistake, any successful form of debt management will be incredibly difficult – but they can be dealt with. And, more to the point, they must be dealt with as soon as possible.
First of all, each consumer must take a stringent and accurate analysis of his or her own credit ledger and find out precisely what they owe and to whom these debts are owed. Sounds simple enough – after all, each borrower did take out the credit accounts once upon a time – but, unfortunately, with so very many credit cards (the average household is nudging fifteen open accounts) – that can be easier said than done. This is not even to mention the other various personal debts that Americans seem to so easily collect. Before anything else, distinguish precisely what sort of debts that you are dealing with. Utilities (electricity, heat, water, garbage, internet, phone, cable or satellite … though, depending upon the situation, cable may best be taken off line for the time being) are an entirely different sort of beast. While obviously you want to maintain the accounts in good standing, there’s no such thing as debt management when the family is shivering in the dark, these should be the least of your concern. Utility companies tend to be regulated by local governments, and, as such, they are less concerned both with sending delinquent accounts to collections or contacting the three credit bureaus to report past due payments. Even if you are two or three months late with renumerations, contact the utility representative and attempt to arrange some sort of payment schedule that allows for the most beneficial terms. Most of the utility companies will happily work with you to calculate a minimum monthly stipend with low interest rates – sometimes they will even offer a schedule with no interest at all!
The two primary causes of personal consumer debt within most American households are secured and unsecured loans. Secured debts, those that are some how attached to physical collateral, are still yet not to be considered quite as bad as the unsecured debts. The secured loans properly taken out could even be deemed good debts, if there is such a thing, and the interest rates are almost always far lower. School loans (which, for the purposes of modern American life, should be understoood as secured since they are not eligible for Chapter 7 bankruptcy protection; assume the rigors of continuing education to be sweat equity of a sort) greatly help further income potential down the road. Automobiles are simply necessary for the vast majority of our countrymen regardless of the environmental (and, inevitably, debt load) consequences. You may want to consider a more fuel efficient vehicle during this time of ever escalating gas and oil price hikes – or, heaven forbid, walking, bicycling, public transportation, and similar steps – but we cannot exactly expect most Americans to just give up their car loans. Similarly, real estate mortgages are something of a necessary evil. As with automobiles, the interest rates are set much lower as repossessions and foreclosure are legally threatened should the borrower default, and, though the current plunge in property values may make one wonder, the history of real estate in this country almost always makes such investments appreciate over time. Especially for residences – shelter being a primary human need, if needs be said – homes well chosen with mortgages properly taken out (none of this payment option Adjustable Rate Mortgage business or the interest only loans that actually force negative equity) are most folks’ greatest and wisest investment. This is far less true with second mortgages. Equity loans boast far higher interest rates, often reaching the double digit interest of the credit cards they’re too often taken out to consolidate, and should be avoided at all costs: particularly in these times of national economic uncertainty.
Once the other debts have been accurately tabulated, this should purely leave the greatest of all American debt nightmares – credit cards. (we’re leaving aside those debts accrued from criminal misdeeds or familial obligations – alimony, child support, court mandated reparations – for the needs of this article) Credit cards, the towering royalty of unsecured debts, grew exponentially more available to just about everyone regardless of qualifications the past few decades, and, by this point, the ordinary American household should find themselves in hock to more than twenty thousand in debt to their various lender masters. There’s a few different solutions to what should be seen as a grave and life altering problem of which consumers can avail themselves without turning to high priced (Consumer Credit Counseling) or potentially destructive (Chapter 7 bankruptcy) debt management alternatives. Scouring through the internet, two maneuvers tend to come up most frequently. One method, known as laddering after a rather more difficult to explain investment banking technique, seeks to tackle the highest interest rates first while ignoring (minimum payments must still be made for every debt, secured and unsecured, else FICO scores and credit ratings are damaged and interest rates are raised across the board) all but the smallest of monthly outlays. Notice, we did not say minimum payments. Representatives of the credit card companies are often more than willing to revamp the terms of your account in exchange for an enlightened and well constructed budgetary program that shall best enable full and swift repayment. This sort of tactic, if executed with discipline and an eye toward eventual success, should at least ensure that the worst sort of bills do not continue to exponentially increase with the poison of compound interest.
Of course, this is far from the only strategy for debt management that experienced debt advocates have discussed in order to erase their credit card balances once and for all. The other program most often talked about is, for lack of better term, called reverse laddering, and, while it still concerns itself with paying off one debt above all others, this has rather a different motivation. With the reverse laddering program, borrowers must do whatever they can to first eliminate the lowest balance of all of their accounts. Fortunately, this loan, coming toward the end of credit viability, also generally contains the highest rates, but, nevertheless, the guiding principle is meant more to lower the overall number of accounts for purposes of motivating households that helplessly tend towards depression in the face of seemingly insurmountable debts. The effect of eliminating even just one credit card bill can lead a near miraculous inspirational sensation buoying the entire family toward debt management efforts which, with the accompanying struggles, cannot be overlooked. It is one thing, after all, to decide that debts need to be paid and quite another to actually set aside the funds necessary for credit card freedom to be actualized. Taking out additional work – or even asking family members to pitch in with part time jobs – would be one avenue, but most borrowers who’ve found themselves hamstrung by debt are already doing whatever they can to raise earnings. No, the most important step should also be the easiest: leave the credit cards alone.
While many households and borrowers have been stranded in this financial swamp through no real fault of their own – continuing unemployment, accidents, tragedy to loved ones, sudden hospitalization (especially with so few Americans now enjoying the protection of health insurance) – most consumers have only their only ruinous spending habits to blame. Credit cards don’t spend themselves after all, and a complete and utter change of purchasing behavior must be part and parcel of any decent attempt to re-establish financial security. We understand that there are household expenses that need to be fulfilled, but even those, in virtually every circumstance, could be yet reduced so as to free up funds for additional payments to the credit card of your choosing. Whether lowering food bills by buying bulk purchases or considering cut rate brands or simply foregoing some of the more expensive pleasures, every family has any number of relatively painless methods with which they might actively carve out a greater chunk of their income that could be devoted to credit card debt elimination. Some families have found that recording every single expense and adding up the totals – there are budgeting software packages that make this a bit easier – effectively cut their total household costs by as much as a quarter, and, by investing (if you think of it that way) the moneys saved back into debt payments, they could clean up their finances in only a matter of years. The most necessary aspect is formulating the debt relief plan and expanding the funds open for repayment as they become available.
This, sadly, is not a realistic option for every American. Many consumers have fallen too far too fast under the yoke of personal credit card debt, and, especially for those now without jobs as unemployment continues to rise, there’s just no way for a good portion of our countryment to fully envision a life without debt for decades to come. Considering the long term effect of their past purchasing, it may not be a bad idea for borrowers so afflicted to consider some of the professional alternatives now available. While most experts in the field of debt management would want debtors to avoid the Consumer Credit Counseling industry – from their history of accepting payments from lenders to the disastrous repercussions upon FICO credit scores to the sky high prices charged by their representatives – there are still yet different methods available besides the nuclear option of Chapter 7 bankruptcy debt elimination which, after the legislation of 2005, has proven more difficult to enter and almost impossible to survive with possessions intact. Debt settlement, for one choice, has attracted rave reviews for the companies’ services. Though each firm goes about their practice with a specific manner, the larger notion remains the same – negotiate reduction of total credit card debt by first consolidating said debts and then, through bartering with creditors scared of bankruptcy protection, lowering the balances by as much as half of the original burden. Not every consumer would be admitted into the program, of course, but, unlike Consumer Credit counselors or bankruptcy attorneys, most of the debt settlement professionals will be happy to meet potential applicants free of charge for the first consultation. As with any of these maneuvers – aside from the spending freeze all households should currently consider – it shan’t be the best technique for every American, but, like the rest of the possibilities mentioned, it should warrant investigation by any borrower concerned about healing his or her own finances during this period of national economic peril.
Starting without a plan makes the job of getting out of debt so much harder and so its probably helpful to have some form of a guide.
o Do some budget planning. Plan how you will spend your paycheck
o Don’t buy something just because you really want it. Buy only things you need.
o Spend as little money as possible.
o Take up a hobby that involves no money-spending.
o Avoid using credit cards! Seriously! The easiest way to avoid debt is never, never charge anything on a credit card. If you absolutely think that you need a credit card (to “help” get a good credit score) use the credit card only for purchases that you can pay off at the time you use the credit card. Pay off your credit card bill completely when it’s due. Don’t leave anything to accrue interest and definitely don’t delay for late payment charges, those are just extra expenses. This way you will earn a good credit score without taking on more debt.
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