Debt Solutions

Difficulties with personal finances, which have been intensified by the influence

of both the economic downturn of recent years and the balances of unsecured debt, have put consumers on the lookout for legitimate remedies. The downturn has had a fairly devastating effect on employment, home prices and the ability to secure loans as prices on necessities have risen. Before the downturn took place it was very easy to qualify for loans and consumers were making new purchases at a torrid pace, but now the true extent of the overspending that took place is being felt as Americans are now confronted by large account balances at interest rates that can go upwards of 25%. Hordes of consumers require a solution for this debt as they can only afford to make the minimum monthly payments now, and this consigns them to repayment periods that can last for 20 years or even longer.

For those consumers whose debt situations are relatively mild, thrift and discipline may be all that is required to bring their finances back in line. making a complete list of typical monthly expenses and then trimming or eliminating them entirely can free up funds that can be used to pay down debt. Even those who require more aggressive debt solutions will find that its effectiveness is enhanced by combining it with thrift and discipline.

Refinancing the high interest debt by using the equity in a home as security is a straightforward method of converting the debt to lower interest rates. But the combination of reduced equity levels and strict lending guidelines have made this option difficult to take advantage of. So-called debt consolidation loans for unsecured debt have all but disappeared from the marketplace for the time being.

Credit counseling and a debt management plan (DMP) that its clients can gain access to benefit the consumer through personal financial counseling, lower interest rates on the included accounts and credit score protection. Debt settlement, which is also sometimes referred to as debt negotiation, can claim some truly impressive successes for some clients, yet it suffers from a high drop-out rate due to problems inherent in the process required to achieve settlements with the creditors. Many consumers have also had their money simply taken by unscrupulous settlement companies in an unregulated environment.

Those with the most serious debt problems should probably consider bankruptcy as a debt solution too. A Chapter 7 "fresh start" bankruptcy is more difficult to qualify for since the 2005 bankruptcy reforms, and many may end up in a court-ordered Chapter 13 repayment plan instead. Regardless of whether Chapter 7 or Chapter 13 is the route taken, credit damage will be severe and will last for 7 to 10 years.

Clearly there are debt solutions available to consumers with troublesome unsecured debt. Those who can get by with thrift and discipline are strongly encouraged to do so, while those with more serious problems will need to consider one of the other solutions. If avoiding credit damage is a top priority, then credit counseling may be the first one that should be considered.

by: Jackson Roberts.

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