Many Americans today have too much credit card debt. And, in today's declining economy, many people are worried about how to pay their debts in the event of job layoffs or rising expenses.
The inability to make even the minimum payments on your credit cards can result in your debt rising very rapidly. If your payment is late by even one day, the credit card company will charge you a late fee. In addition, late payments can cause the credit card company to raise your interest rate, making it take even longer to pay off your balance. And, late payments result in negative information on your credit report.
There are two popular credit card debt solutions. One way is card consolidation. Credit debt programs are another popular way. It's important to understand the differences in debt settlement vs. debt consolidation, so we'll go over each.
Debt Consolidation - Debt consolidation means, quite simply, consolidating many debts into one debt. The most popular way to do this is through a bank loan or home equity loan. You use the money obtained for the loan to pay off all your credit card debts, leaving you with one payment instead of many. In most cases, the interest rate on your consolidation loan will be lower than the interest rate on your credit cards. This means that your consolidation loan payment will be less than the total credit card payments you were making each month, saving you money right away. In addition, the lower interest rate means that the loan will be paid off faster than you could have paid off the credit cards. Just be certain that you stop using the credit cards that you've consolidated. Otherwise, you're left with a consolidation loan payment plus a credit card payment. It's important to note that if you've neglected your credit card payments for several months, you may have difficulty qualifying for a consolidation loan, due to a poor credit rating. It's important to consolidate early, before your credit card bills get impossible to pay.
Debt Settlement - Debt settlement allows you to settle your consumer credit card debts for less than you actually owe. You will typically work with a credit card debt settlement company who will write a debt settlement letter to each of your creditors on your behalf. Once accepted, you will pay off only a percentage of what you actually owe on each card. You will typically make just one payment each month, payable to your debt settlement company. This payment will include all of your new monthly credit card payments, plus the fee for the debt settlement program. Your debt settlement program will be responsible for distributing the payments to your creditors. This monthly payment should be considerably less than the previous total you were paying to your creditors.
Debt settlement is not for everyone. It can seem like an easy way out, but there are repercussions. The most important repercussion is the effect on your credit rating. Enrolling in a debt settlement program will have a negative impact on your credit rating. However, if you are having trouble making your credit card payments, you are likely already experiencing a negative credit rating impact. Debt settlement may actually improve your rating if you can begin to make payments that you have previously had to forego.
Now that you have a better understanding of the real credit card debt facts, it's time to start attacking that credit card debt before it mounts further. Regardless of which option you choose, it's important to get started as soon as possible.
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