Interest can range from as low
as 1.9% to as high as 30% and creditors can raise rates at
any time.
•
You'll pay nearly 50% of your original balance
in interest alone over the first 3 years. You are not making
a dent on your principal balance.
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If your rates are 25% or higher, it is practically
impossible to pay off your debt by making minimum payments
unless you pay at least 3% of the balance in minimum payments
monthly. Even then, it would take you over 35 years to pay
off your debt.
•
At lower rates, it will still take 20 to 40
years to pay off your debt with minimum payments with little
room for obtaining additional credit.
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If you've already stopped making payments,
you are destroying your credit while not resolving any of
your debt in the process.
File Bankruptcy
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Both Chapter 7 and Chapter 13 bankruptcy
represent a severe negative impact on your credit for 7-10
years.
•
Can cost up to $2,500 to file.
•
May have a negative impact on your employment
status.
•
In a Chapter 13 filing, you may end up paying
75 - 100% of your debt back.
•
Chapter 7 is much more difficult to qualify
for under the new bankruptcy laws.
•
May result in higher interest rates on future
loans.
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Carries a negative stigma, mental stress, and
other burdens.
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Bankruptcy is a 'last resort'.
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Chapter 13 completion rates average only 32%.
Use Consumer Credit Counseling
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These companies are generally funded
by the credit card companies themselves. They do not necessarily
have your interest at heart.
•
They are just another form of 'collection agency'
they act as a bill paying service of which a survey of credit
counseling companies showed that the average interest rate
charged is around 11%. They will consolidate your bills into
one monthly payment and lower interest rates.
•
Your Balance will often take 3-7 years to pay
down.
•
Pay over 25% of principal balance in interest
fees over the first three years.
•
You'll end up paying back your full balance
plus interest.
•
Overall fees of an average credit counseling
program are equivalent to or greater than those of a debt
settlement programs.
•
Negative impact on your credit from 5 - 8 years.
•
This is often viewed by lending institutions
as similar to Chapter 13 Bankruptcy.
•
The average completion rate of consumer credit
counseling is approximately 26%.
•
If you miss multiple payments you may be subject
to paying back past interest at your old rates that you entered
into the program with.
Debt Consolidation Loans
•
Need to qualify first.
•
Often requires ownership of Real Estate property
or a pledge of collateral.
•
Home Equity loan reduces future equity available
in your property.
•
Consolidates your credit card balances.
•
Missing payments could cause you to lose your
home or the collateral you pledged.
•
A transaction fee is usually required upon
closing or is built into the interest rates.
•
Payback can be 10-20 years depending on debt
balance and ability to pay back loan.
•
You will pay back the full amount of credit
card balances plus interest.
•
Bottom line: You are exchanging your unsecured
debts for a secured debt - a big risk.
Rapidly becoming the top method
for consumers with financial hardships to get rid of problem
debt.
•
Companies are independent and not affiliated
with your creditors, and thus, are working for your best
interests. There are a few exceptions to this rule such as
a company call Credit Assist, so be aware.
•
Fees are spread out over time, usually 12-24
months depending on the length of the program.
•
Client's debt is paid off in anywhere from
18 - 36 months depending on cash availability.
•
Will receive an 'open delinquency' on your
credit until debts are settled.
•
Lowers your debt to income ratio more quickly
than Consumer Credit Counseling, which represents a significant
factor in your ability to quality for a loan.
•
You may typically end up paying only up to
50% of your outstanding balance.
•
Negative impact on your credit for as long
as you’re in the program..
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We advise that before you enter another debt
settlement program, you check to see if the company is licensed,
bonded and insured, and a member of TASC.
