Are you constantly making late payments or even no payments at all because you have too much debt? Does your telephone stress you out every time it rings because you think it may be a collection agency looking for you? If you are someone that feels this way I want you to know that you are not alone.  In fact, did you know that there are well over 40 million households in this country that struggle to make only minimum monthly payments to the credit card companies and that this number will likely double within the next few years! 

So the question of the year is how do we go about helping these individuals from drowning in debt?  ANSWER:  You must first recognize the danger signs!

You know you are in danger and need immediate help when you:

• Not only make the minimum payment each month on your credit cards, but the payment is also late;
• Applied for more credit cards in the same year or tried to transfer your balance to a 0% credit card;
• Started charging your groceries and monthly utility bills to a credit card;
• Begin screening your telephone calls thinking it is the collection agency.

Okay Edgar, I recognize that I am in the danger zone, but how do I get out of this mess?  My friends, these are your options:

1. Continue Making Minimum Payments and Pray a Lot!

This is precisely the choice credit card companies want you to select. You need to understand that it will take you over 20 years to bring your balance to zero and cost you more than ten times the amount you originally borrowed, if you were to only pay the monthly minimum (assuming every payment is made on time and you never use the card again).

If you get to the point where you are not even keeping up with the minimum payments, collection agencies will begin to circle around you like vultures waiting for you to collapse. At this point your momentum towards bankruptcy begins to speed up because creditors will start to charge you penalties and unreasonably high interest rates making it impossible for you to bring down your debt. Moreover, the collections agencies will begin to call you on a constant basis to let you know that if you do not pay that they will file suit against you that will result in wage garnishments, court judgments, and liens on your property. This is what I call having the vultures land on your head because your credit rating not only would have suffered tremendously but also it may be too late to implement a plan to get you out of this problem. 

My advice: Act fast once you notice it becoming more difficult for you to keep up with your payments. Do not let the vulture land on your head!

2. Bankruptcy

Stay far away from this option! 

Bankruptcy can cause more problems than what it resolves because although it may forgive some of your debts, it does not eliminate all of them.  Moreover, once you have declared yourself bankrupt, it will remain on your credit record for about 7 years and about 15 years on all court records.  Even after this time has past, you will always have future employers, insurers, and lenders ask you about it thereby making your life much harder because a lender for instance will charge you a higher interest rate making it nearly impossible to purchase a home or car. 

I am not going to go into the details of bankruptcy in this article, but I do want you to know that you need to stay as far away from this option as you can. However, if you reach the point that you feel the vultures are starting the peck at your eyes and you have no way out of your debt problems, contact an attorney first so that they can educate you on bankruptcy.    

3. Debt Settlement and Consolidation

 This is by far your best choice!

Debt settlement is the fastest and least costly option for eliminating debt. This is what I call having a second chance at saving your credit, because you not only have the opportunity to eliminate your debt, but also implement a financial plan that will help keep the vultures away forever.     

What exactly is debt settlement? Debt settlement is a process of negotiating with your creditors and getting them to accept less than what you owe them, thereby relieving you of all obligations for further repayment once the lesser amount has been fully paid. The goal is to reduce your debt down to 30% to 50%.   

But why do creditors accept less? I call this the “something is better than nothing” theory. Creditors prefer to get paid today, rather than have you go into bankruptcy and risk not getting paid at all.   

Can all of my debts be settled? NO! 

Why not? The best way for me to explain it to you is by teaching you about the two types of creditors—Secured Creditors and Unsecured Creditors.

 A secured creditor (i.e. bank) is a lender that secures its loan with collateral or a secondary source of repayment. The most common forms of secured loans are home loans from a bank, car loans, and school loans. You should never expect to settle these secured debts because if you fail to pay the secured lender will seize and sell the collateral that secured the loan (i.e. the bank moves to foreclose on your house or have your car repossessed).

On the other hand, an unsecured creditor (i.e. credit card company), is a lender that relies only on your promise to repay. The only thing an unsecured creditor can do is to make you life more stressful by putting your delinquent account with a collection agency and by damaging your credit score. These are the types of debts that are ideal for settlement and that will help keep the vultures away.  But remember, you must act fast. 

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