Tuesday, December 24, 2013

Eliminate Your Credit Card Debt Before It's Too Late

Any kind of debt is stressful for sure. But did you know that you should be dancing for joy if your debt type is unsecured? What’s unsecured debt? An example is credit card debt. You obtained it without committing a property should you default on payments. No collateral means higher interest rates but that’s alright, since it gives you purchasing power, without actually having money to spend yet. When you miss payments, the said high interest starts to add up to your balance, and that leads your situation now. Deep in credit card debt.

Your deep in credit card debt but you should be dancing for joy, what does that mean? It means that even if you never ever repay that debt, you won’t go to jail or prison, because the inability to pay debt (at least in the honest way possible) is not a criminal act.

The time to eliminate your credit card debt is now!

The best that the creditor can do is sue you for judgment. A judgment doesn't happen instantly. It’s a court procedure, so you would be given time to reply to summons, and prepare your defense. If the creditors win, they would have the right to garnish your wage, levy your account, or put a lien on your properties – depending on what your state law allows. If you were found to be ____ chances of the creditor winning or even filing a judgment case is slim. Which consumer could be a candidate for ___?

The retired or senior citizens with no other means of income but their pension; which in most states if not nationwide, is protected by the law (*this is not to be taken as a legal information, it’s always better to consult with a lawyer regarding these matters).

If you are being sued for judgment though, whatever you do, don’t ever skip the trial date. You have to be there and defend yourself so the creditors won’t get what’s called a “default judgment”. A lot of these cases are won by default or by non-attendance by the consumers because of various reasons, and that’s just not right. If you honestly cannot pay the debt because of hardship and you have proof, then by all means represent yourself. If you can’t do this, it’s understandable that it can be intimidating, contact a consumer rights group and ask for a pro bono lawyer. If they can’t represent you at least they can counsel you or guide you on how the trial is going to go.

You are being sued for judgment, you still can’t pay your credit card debt, and how can you eliminate your credit card debt?

One of the easiest way out of this situation is to file for bankruptcy. Bankruptcy has a provision called “automatic stay” in which all collection activities against the consumer is prohibited. But filing for bankruptcy on unsecured debts may not be wise.

A bankruptcy’s impact on credit is legendary and it’s not in a good way. Not that people can’t recover from its effect, it’s not impossible, but it takes time to rebuild creditor trust and it’s not easy. That’s why a bankruptcy should not be filed, as the first debt relief option because there are alternatives.

Alternative debt relief options that work

For huge unsecured debts, there’s debt settlement. A debt settlement program is about the negotiation of the original overall balance, down to more or less 50% - depending on the account status or where the account is at. Five to six months of straight non-payment forces the creditors to charge the debt off (as per IRS mandate) and then they endorse the account on to a third party collection agency.

It may be difficult to obtain a settlement with the original creditor but it’s not impossible. They would agree to a settlement if the consumer has 75% of the balance ready as a lump sum payment.  Anything lower than that may be much worse than pulling taffy.

On the other hand, if the creditor doesn't sue for judgment before the charge-off, and endorses the account to a collector, the chances of a settlement is very good – around 70 – 30% of the balance. That’s the reason why enrollment to a debt settlement program requires for the account to be past due and to have a balance of at least $10,000 or more. If the balance is not that huge, the creditor or collector won’t see a point in settling. Accounts with balances lower than that, are seen as payable in full, and not in part.

If people are wondering if debt settlement is legal, the answer is it is legal, and it is in favor of the consumers rather than the creditors – unlike the other alternative debt relief: credit counseling.

Credit counseling is a non-profit debt relief program that educates consumers about their debt and budgeting. It’s been said that many credit counseling agencies, just like many collection agencies, are owned by creditors. So it’s not easy to see whose interest they are looking out for. That’s not to say though that credit counseling doesn't work. It actually does, if the consumer’s financial situation fits the program. Credit counseling has a program called Debt Management Plan. If after assessing the consumer’s debt, it’s determined that budgeting won’t solve the problem, the agency would recommend the consumer to sign up to a DMP. The DMP negotiates the consumer’s interest rates so they can pay up their original debt amount. Enrollment to this program requires for that accounts be current and not over $10,000. The program lasts for 3 to 5 years and costs $25/month. The agency also reserves the right to kick the consumer out of the program should they miss a payment.

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