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The ravages of credit card debt have plagued countless consumers across the country as of late, and many Americans are desperate for any kind of relief. As they seek to take care of a seemingly endless string of bills, more and more Americans are turning to debt management solutions to provide some assistance in relieving the burden of credit card debt. Now, as you probably know, debt management can refer to a whole host of different techniques with which borrowers and their debt management professionals can attempt to take charge of their home economics. In this article, we’ll briefly look at some of the more popular methods of debt management. However, it is important to remember that this is only the tip of the iceberg in regards to the information each borrower needs before entering the world of debt management. As much as it may help to read some cursory explanations of the various options available, smart borrowers should investigate each and every option before committing to ease their financial difficulties.
What happened to bankruptcy protection?
For virtually all Americans’ entire lives, bankruptcy has existed as the ultimate solution to unmanageable debt. However, over the past generation, more and more changes to the United States Bankruptcy Code have severely weakened the protections previously available to all consumers. About twenty years ago, the first blow to bankruptcy protection came when Congress removed student loans (both public and private) from the type of debt that bankruptcy could effectively deal with. Then, in 2005, under pressure from lobbyists from multinational credit card groups and their own Internal Revenue Service, the government changed nearly everything about Chapter 7 protections as previously understood. Bankruptcy has never been an attractive option – in fact, it has always been considered devastating to credit and embarrassing to personal reputation. Yet, American borrowers have always assumed that bankruptcy would be the last resort for debt management, and sadly, that is no longer the case.
However, one thing hasn’t changed. Bankruptcy still has (at least, for a decade) devastating consequences in terms of FICO scores and overall credit ratings. If anything, the modern breed of loan analysts who have been specially trained to look at credit reports for findings above and beyond Fair-Isaac scores will treat borrowers who have declared bankruptcy and even worse. These types of notes can have consequences for managing debt that has been recovered prior to bankruptcy. Even in the best of scenarios, twenty-four months must pass after a formal discharge before consumers qualify for new loans or new credit accounts, and even then, those declaring bankruptcy face interest rates beyond appalling. It’s always been a tough road to pursue, considering the loss of property and credit privileges that Chapter 7 unions typically require — but it’s almost unimaginable nowadays for borrowers with no other option.
Recognizing all the negative consequences regarding credit that follow borrowers who filed for bankruptcy, it is still not surprising why the notion of Chapter 7 protection still appeals to so many Americans. Even taking into account the disproportionate costs that ever more expensive bankruptcy attorneys will charge (and even for the initial consultation!), the temptation to write off most unsecured debts is There is an obvious attraction. That said, some debts are exempt from bankruptcy proceedings. Student loans will not be able to be covered under Chapter 7. Most tax liens, family support, money owed from criminal proceedings, and miscellaneous other debts are also ignored. Yet, to be sure, Chapter 7 bankruptcy protection, if successfully declared, can be a powerful debt elimination tool, even though under current guidelines, borrowers will most likely be at risk of salable assets or property losses. However, with these new strictures, borrowers will only qualify for the Chapter 7 program if they earn less than half the median income for their state of residence, as determined by an arbitrarily chosen period. Bankruptcy protection will not only be more corrosive and eliminate fewer debts than before, because many debtors might not even be able to declare!
Spend Wisely!
Of course, for debt management to have any sort of success, borrowers must re-learn some of their most harmful behaviors. To be fair, there are many different reasons why people may find themselves overwhelmed with debt. Yet all else, even those borrowers who have faced catastrophic calamities (sudden unemployment, accidents, hospitalization or other medical emergencies, and other such unforeseen calamities), may try to ensure They were sure that they had reasonable savings in case such a misfortune should befall them. It’s not the most exciting form of debt management, to be sure, but it’s extremely important. Mindless spending is by far the most common reason most families end up in self-made debt. Thoughtless purchases you don’t need (or, in many cases, even want) will quickly lead to a reflexive pattern of overspending, resulting in credit card debt spiraling out of control.
Unfortunately, once any type of behavior becomes fixed to conditioned habits of overspending, it becomes equally difficult for the consumer to recognize their misdeeds. For this reason, it is a good idea for anyone to begin investigating the various options available to them before contacting a debt management professional to figure out how to cut their expenses. One tip we would suggest would be to spend one month recording all the household expenses. This doesn’t just mean adding up utility bills or calculating grocery costs for a given month. Instead, really write down all the little purchases that families forget about. By this we mean every single cent that is spent by the members of the household. Once they are properly tabulated, even the most seemingly chintz or whimsical buys clearly prove the underlying reason behind the large loans.
Do you really need to spend a dollar for a soda every day at the office? Should you spend five dollars for a magazine at the store as opposed to a monthly subscription? Can you afford to spend forty dollars each week for family night out at the movies? At the end of the process, you will be surprised how much your expenses can be reduced. Do You Really Need Premium Cable Channels? Couldn’t you mow your own lawn instead of paying the neighborhood kids? Everyone has some budget for entertainment, but many families spend way too much on unnecessary silliness. Even borrowers who don’t have extreme problems with credit card debt should always keep a close eye on household spending to maximize savings in case of emergencies.
What to do when your debt is out of control
While reducing purchases and controlling family spending habits are, as we’ve explained, very important parts of debt management, there are some borrowers whose debt obligations have grown to such an extent that such stopgaps are of little use. Will not done. Fortunately, there are now several alternatives to bankruptcy that debtors can take advantage of while trying to reduce their overall burden. As you would imagine, the right strategy will depend on each debtor’s specific scenario. Firstly, we would advise you to discuss your options with your credit card companies. Believe it or not, your creditors will often design payment schedules to make sure they are not overly onerous. After all, the last thing they want is to put the debtor’s back against the wall so that they consider Chapter 7 bankruptcy. Even if they won’t significantly lower the monthly minimum payment, they will usually waive past due fees and lower the card’s interest rates. Whenever your accumulated debt builds up to the point that you have trouble making your minimum payments, it’s always a good idea to talk to representatives from your various lenders to see what can be done. For borrowers who have been put in such a dire situation simply because of injuries, loss of employment, or other force majeure events, clearly even more leniency should be expected from credit card companies. Even more than bankruptcy protection, the corporate offices of lenders fear bad publicity for unfairly punishing defaulters.
Nevertheless, once the loan grows to a certain amount, even a drop in interest rates or an extended payment schedule may not be able to adequately help borrowers. At this point, debt management professionals would urge such borrowers to consider investigating the debt settlement industry. In a way, this approach isn’t much different from when borrowers contact credit card representatives in person to ask for special terms, but there are several aspects of this approach that deserve further explanation. With debt settlement negotiations, debt specialists actively attempt to persuade the credit card companies and their parties to the negotiations to reduce their overall debt load – sometimes by as much as fifty percent! Sounds unbelievable, but not all borrowers will be able to enter the debt settlement program, it must be said. Competencies are extremely important within debt settlement as the settlement firm not only acts on behalf of debtors when dealing with various lenders if they actually absorb the debts themselves.
Now it should be more clear why availing the debt settlement option is quite difficult. Obviously, settlement firms would only want to take over the consolidated loan and credit accounts of borrowers whom they believe will repay their trust. Furthermore, not all credit cards will agree to the demands of settlement negotiators — although more and more people are recognizing the benefits of the program every day. However, for those borrowers who successfully work with a debt settlement company, they can see their loan balances drop by thousands of dollars within weeks. The reason settlement specialists are so successful in this form of debt management is not purely due to experience, training, (there is a national certification board) and prior relationships with lenders. No, that is why it is so important that the debt settlement company consolidates all the debts of its clients before they ever start negotiating. Settlement reduction only works when creditors truly believe that all debts are being treated equally. It’s not just that credit card companies will be less likely to listen to amateurs’ efforts to reduce their obligations. They will agree to cut debt only if they know that their competitors are doing the same.
Of course, as with any professional debt management program, there are also disadvantages to be felt, especially in PocketBook. While the costs are negligible (and, generally, non-existent for the first consultation) compared to the money saved from successful debt negotiations, settlement specialists don’t work for free, and you may find yourself paying extra on whatever balance you owe. Will find with the fee they manage to barter. Also, the credit report will get affected after the loan settlement. Credit accounts labeled ‘satisfied’ rather than ‘paid’ look somewhat worse to credit analysts, and will result in a drop in FICO scores – although, once again, when set next to the carnage from bankruptcy debt elimination, So most borrowers won’t be able to tell the difference. Since it can be difficult for borrowers who have gone through debt settlement to find credit cards right after the process is complete, they must also close all open accounts in order to assure creditors that they are not running into any type of scam. Not planning to. , This can make it difficult for households to survive during the three to five years that debt settlement traditionally takes, but, as will all debt management strategies, the alternative is dire.
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