Having constant credit card debt has become the norm for many Americans. In March 2012, the average household had nearly $6,800 in credit card debt. Among only indebted households, the average was $14,517.
With a struggling economy and tightening household budgets, Americans may not be able to meet their minimum monthly payments, or may do so with significant hardship. Meanwhile, individuals’ credit card debts continue to rack up interest and late fees, adding to the financial burden.
It’s now more important than ever for you to take control of your debt rather than letting it take control of your life.
If you can’t keep up with your current bills, you have a few options to help you restructure, reduce or completely eliminate your credit card debt. These options are consolidation, settlement and, in dire cases, bankruptcy.
Debt consolidation is a straightforward process that you can do on your own or with the help of credit counselor. Consolidate your debts by taking out a single large loan. This loan ideally will be the same amount as all your credit card debts combined.
Use the money from your new loan to pay off all your credit cards. When the process is complete, you’ll be left with just the one loan to repay rather than many smaller debts.
The new loan will be much simpler to handle. Rather than making several payments to different creditors each month, you’ll be responsible for a single monthly payment. And personal loans typically come with significantly lower interest rates than credit cards, so you’re likely to save money in interest as you repay the loan.
Additional benefits may include reduced late fees and other charges, lower monthly payments and a longer repayment schedule.
Debt settlement requires more work and dedication that consolidation, but it has the potential to save you thousands more than consolidation would. It is best done with the aid of a professional credit counselor and a debt settlement firm.
During the debt settlement process, your credit counselor will contact your creditors directly. He or she will work to negotiate a reduced principle. In a successful settlement, you could end up responsible for repaying only half of your total debt amount. For many Americans, that equates to saving thousands of dollars.
Bankruptcy should only be used if no other option will work for you. It is designed to give you a fresh financial start and can erase all or most of your debts.
While your credit score does take a blow after bankruptcy, your score and report are probably already significantly damaged if you’re considering bankruptcy. Because of this, many people find that filing for bankruptcy does not harm their scores as much as they thought it would.
Additionally, this option’s historical stigma is slowly fading. If you declared bankruptcy several decades ago, it might have felt impossible to receive new loans or lines of credit afterwards. But as the option becomes more commonplace, lenders are forced to adapt their views of such individuals. Many lenders and creditors now are happy to help you rebuild your credit and your life.
Consult a credit counselor to learn more about consolidation, settlement and bankruptcy, as well as to find out if one of these options is right for you.