Debt Overview
The statistics about debt reveal one startling truth: Americans increasingly find themselves in debt. The reasons for consumer debt include medical bills, loss of income, divorce, or excessive spending. Yet regardless of why consumers find themselves in debt, they eventually feel pressure and stress, which can affect their mental health, their job performance, and their family relationships. According to the U.S. Courts, 617,660 Americans filed for bankruptcy in 2006, even after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made filing more difficult. Consumer credit card debt rose to $800 billion in 2005, notes research group Demos.
Unfortunately, most people don’t learn about making wise financial decisions in school, and many parents don’t warn their children about the risks of debt and the importance of good credit. And even if we do learn those important financial lessons, the ease of obtaining credit cards can be just too tempting. The amount of fees and interest people actually pay when they make minimum payments on their credit cards, however, might surprise you:
* Banks will lower the minimum payment as the account balance decreases.
As the previous chart shows, a $10,000 purchase can turn into a $24,423 expense – and require 28.5 years of monthly payments. Fortunately, Americans have options for dealing with their credit card debt. With the Simple Plan, we can help you transform your financial situation with solid advice and a proven debt negotiation and payment strategy. Debt Options: Making the decision to control your debt requires courage. Fortunately, you have options when you decide to start to eliminate your debt:
Do It Yourself – For many people faced with debt, admitting they have a problem can prevent them from seeking the expert help they need. Making the minimum monthly payments, however, leaves people even further in debt, a downward spiral that’s nearly impossible to escape unless you can suddenly gain the wealth needed to pay off huge amounts of debt.
Debt Consolidation – Many people choose debt consolidation loans, such as home equity loans, to handle their credit card debt. Instead of paying high interest rates on one or more credit cards, they can take advantage of a significantly lower rate and one convenient monthly payment. While this option certainly beats paying the minimum payment on your credit cards, it does have a few negative aspects. A debt consolidation loan may be spread out over 15 or even 30 years – a long time to pay for purchases you’ve made on your credit cards. In addition, when you take out a home equity loan, you agree to use your home as collateral. So if you don’t make those monthly payments, you risk losing your home! Perhaps the most common risk consumers face with debt consolidation loans is the temptation of having balance-free credit cards. In some cases consumers quickly repeat their mistakes by running those credit card balances right back up.
Credit Counseling – Some consumers turn to “non-profit” credit counseling programs to help them get out of debt. The credit-counseling agency will design a reorganization plan to pay your debts and then close all of your accounts, collecting a payment from you each month. What consumers don’t realize is that the creditors then pay the agency a “fair share” contribution. While the agencies maintain their status as “non-profit” because they don’t report a profit each year, they actually make a great deal of money – and distribute it to employees and high-paid executives. In addition, creditors may report your association with credit counselors to the credit bureaus. For the next seven years, lenders will see that you’ve been in a “hardship program” and many lenders will not consider you worthy of a loan.
Bankruptcy – Some consumers turn to bankruptcy when they feel there’s no other option. Yet while bankruptcy may seem like a magic solution, halting legal actions and discharging your debts, it can have lasting long-term effects. Bankruptcies become part of the public record, so anyone can find out about your bankruptcy, and a bankruptcy will stay on your master credit report for life. Even if you change your financial situation in the future, a bankruptcy may haunt you, making you ineligible for loans, permanently disqualifying you for some high-level or sensitive positions, and preventing you from becoming bonded. Plus, you must give up control of your assets to the court, and you risk losing your home or vehicle if you can’t keep up with the payments.
Debt Negotiation – If the previous four options have left you feeling pessimistic, you’ll be happy to know there’s a much better option: debt negotiation. Debt negotiation puts you in control and lets you pay less than what you currently owe, in affordable monthly payments. Professional debt negotiators understand that creditors realize they may never collect on delinquent accounts. Even if creditors sell those accounts to collection agencies, they generally make just 5 to 15 cents on every dollar owed. So creditors generally welcome the opportunity to negotiate settlements. If you try to negotiate with creditors yourself, you may receive a settlement of 85% or higher, but you probably can’t afford to pay such a large settlement. Experienced professional debt negotiators, however, can get a more attractive settlement for you – so you can afford to get out of debt. That’s The Debt Negotiation Company’s difference: the Simple Plan.
After exploring these five options, you probably realize the importance of developing a plan to get out of debt. Stop making those minimum monthly payments, and find a solution to deal with your debt now. With The Simple Plan, you can trust the financial experts who know how to deal with creditors and help consumers get out of debt affordably and quickly.