Eliminating Financial Debt and Doubt

After conducting a recent survey, credit agencies concluded that over half of Americans report significant trouble in meeting their minimum monthly credit card payments. With dire credit and debt abounding, viable alternatives to current credit management must be examined and employed.

Clutching anywhere from 10 to 15 different credit cards, the average American household's credit card debt looms somewhere around $8,000. And, with wages shrinking and prices swelling, new strategies for debt elimination seem vitally needed. Fortunately, if rising debt and falling credit are causing intense worry and tension, there are several currently viable avenues towards debt reduction and elimination.

The first of these avenues are non-profit debt consolidation companies, which negotiate directly with creditors to lower or sometimes even eliminate the interest portions of debt. Debt consolidation companies additionally combine the various debts accrued into one manageable monthly payment. Subsequently, debtors pay the debt consolidation company, who then appropriately distribute the funds to creditors. Consolidating payments and erasing interest are simple, safe approaches to debt elimination. And debtors, by making monthly payments to a consolidation company, begin improving their often tail-spinning credit rating.

The reason this strategy works? Non-profit debt consolidators are ordinarily sponsored by credit card companies who are employing current tax laws to write off lost interest payments. Credit card companies, fearing the loss of the principal investment, subsequently allow debtors to shirk interest payments in order to pay the remaining principal portion in a timely and manageable fashion-a win-win situation.

A more aggressive strategy for debt elimination is debt negotiation, whereby an agency or private party negotiates a lump-sum arrangement to purge remaining debts. Credit card companies will sometimes lower overall monetary obligations by as much as 50% in this situation. Fearing the declaration of bankruptcy-in which creditors will only receive surviving assets-credit card companies often accept 50 cents on the dollar payment arrangements completely devoid of interest. Although this debt elimination strategy ostensibly destroys a debtor's credit rating, it's a viable option for those with already abysmal credit history looking to avoid bankruptcy litigation.

Bankruptcy is ordinarily viewed as a last resort to debt elimination. And while bankruptcy purges debt and provides a fresh start, court costs and attorney's fees sometimes equal the lump sum payment option afforded by debt negotiation (U.S. Bankruptcy Court does allow debtors to pay court costs on installments). In addition, bankruptcy leaves a 10 year stain on credit reports, while ordinary credit defaults (debt negotiations) only stay for 7 years. Obviously, there is not a tremendous difference, but certainly something to consider when deciding upon a debt elimination strategy.

For homeowners knee-deep in debt, a home equity loan offers debtors the option to consolidate debts under one loan. The chief advantage of a home equity loan is that debtors can avoid credit card interest rates (commonly 15-18%) by using the loan to pay off credit card debt. The interest rates for home loans are significantly lower (depending on credit history, 7-10%). Additionally, tax deductions are sometimes offered for interest portions of home equity loans.

Discovering the optimum debt elimination plan depends upon factors of debt amount, credit history, and total assets, so seeking specific help from a credit counseling professional is often warranted. Remember to thoroughly consider the abundance of options when it comes to coping with debt; credit card companies are willing to negotiate to salvage the principal loaned. A not-for-profit debt consolidator can, many times, satisfy all parties involved. Lastly, don't be afraid to ask for professional help when it comes to debt elimination-after all, you're certainly not alone.