Debt problems are affecting more Americans today than ever before. The financial crisis of Wall Street left many people with worthless financial portfolios, while the unemployment crisis has drained many saving accounts. Add in wasteful spending habits and you have a recipe for financial disaster.
Many options exist to eliminate debt problems, but it takes patience and commitment to get out of debt. Individuals with mounting debts must take a hard look at spending habits to determine where their money is being spent.
According to MSN Money, Americans carry an average of $8,000 in credit card debt. The majority of consumers pay the minimum amount due each month. Interest is charged on outstanding balances. By paying the minimum amount, Americans remain chained to credit card companies for years to come, even if they don't charge another dime.
In order to become debt-free, consumers must learn to reduce spending. One of the easiest ways to reduce spending is to create a household budget. Budgeting is a simple and effective technique that can help consumers become debt-free.
Financial experts recommend documenting every penny spent for at least 30 days. When people embark on this fact-finding mission they are oftentimes shocked to see how much money they are wasting on items they really don't need. Morning lattes and fast food lunches can add up to several hundred dollars each month. These expenses can be significantly reduced by investing in a coffee thermos and taking brown bag lunches to work.
Individuals unable to pay their bills each month or those receiving harassing creditor phone calls, might need help from a professional credit counseling agency. Credit counseling can help consumers get back on track by thoroughly reviewing income, expenses, and interest rates charged by creditors.
Some credit counseling agencies help consumers negotiate with creditors to reduce interest rates and eliminate late fees. Most creditors will work with debtors who present a realistic repayment plan. Oftentimes, credit card companies require a upfront lump sum cash payment in exchange for reduced interest rates and fees.
Consumers with substantial debt problems might be able to obtain relief through debt settlement or debt consolidation. Debt settlement is usually negotiated through debt settlement companies or attorneys. Consumers pay a fee to debt settlers to negotiate with creditors. In many cases, debt can be reduced by half. However, consumers must be prepared to pay a lump sum cash payment, along with debt settlement fees.
Debt consolidation is typically reserved for homeowners able to qualify for a debt consolidation loan. Homeowners take out a home equity loan to pay off credit card debt and unsecured loans. This can be a risky move because borrowers use their home as collateral to secure the home equity loan. If borrowers become delinquent with payments, mortgage lenders can initiate foreclosure proceedings.
Bankruptcy should be the last resort for overcoming debt problems. New bankruptcy laws enacted in 2005 have made filing personal bankruptcy more challenging. Debtors must undergo the means test to determine which bankruptcy chapter they qualify for.
The means test compares debtors' income to the median income level of their state. If debtors' income is equal to or greater than their states' income level, they must file for Chapter 13 bankruptcy which requires debtors to adhere to a strict repayment plan.
During Chapter 13 bankruptcy, debtors are prohibited from incurring any new debts unless they obtain court approval. Chapter 13 can offer financial relief, but includes tight restrictions. If debtors are unable to adhere to the repayment plan they will fail out of bankruptcy, lose protection from the court, and become liable for all outstanding debt.
Individuals with mounting debt problems must become educated about the options available and determine which is best suited for their financial needs. Each option offers pros and cons which should be carefully weighed. We invite you to learn more about debt reduction options via our debt problems article library.
Simon Volkov offers solutions to individuals who have filed bankruptcy, but unable to adhere to their repayment plan. If you own real estate or financial assets such as cash flow notes, promissory notes, seller carry back trust deeds or probate inheritance assets, contact Simon today to determine what options are available.
Published on October 07, 2009 at 02:14 AM