Steve Martin

For many people this year will bring rough waters financially. With the turmoil in the sub-prime mortgage industry, many will stumble upon unforeseen expenses. And there will be a large percentage of those people with whom this will be the straw that will break the camels back. With the average American household carrying over $10k in credit card debt any unpredicted financial expenses can make the credit card debt situation spiral completely out of control. Leaving many looking for credit card payoff strategies than can work and help them out of a bad situation.

In this article I will briefly touch on the most popular methods of handling debt situations.

Debt Consolidation Loan:

Most consumers seek out a loan in which they can pay off all the other credit cards and then only have to manage just one monthly payment as opposed to making many to other various creditors. First off a lot of people will not be able to obtain a loan, usually some sort of collateral is required, in most cases the equity of your home. There are a few problems with this for one; some people will not have the credit or collateral for this to even be an option. And two you are transforming your lower risk unsecured debt into a much higher risk debt secured by your home. So if you get stuck in another bad situation you might be facing bankruptcy or foreclosure.

A mistake many make is leaving their cards open and then once again charging on them. The statistics show that over 75% of people who get debt consolidation loans within 5 years end up back in credit card debt.

Credit Counseling:

Another option is consumer credit counseling. A credit counseling agency will be able to get interest rates reduced and consolidate the monthly payments into one, kind of like a debt consolidation loan, however you are not being loaned any money.

For some people with lower debt amounts credit counseling can work. In most scenarios the monthly payments required for credit counseling will be very close to what was being paid out for the monthly minimums. So for those who have larger debt amounts and have trouble staying current or have already began falling behind this may not be a wise solution.

Reason being most credit counseling agencies are owned and funded by the credit card companies themselves. And the credit card companies dictate to the credit counseling agencies what will be an acceptable interest rate and monthly payment and there is no negotiating on this at all.

The problem is that if you miss only one payment the credit card companies can kick you off of the program and now allow you to re-enroll in any credit counseling program for up to a year, leaving you back dealing directly with the creditors again and having to pay the high interest.

This leads to a failure to graduate rate over 80%. So like I said earlier credit counseling is best for people with lower debt amounts who have no problem at all keeping up with their payments.

Debt Settlement:

Settlement is a completely different ballgame than the previous two strategies mentioned above. With debt settlement you (or a company you hire) are actually negotiating to get the balance reduced.

The benefits of settlement are a large savings on money owed and a much faster timeframe of getting out of debt. In most scenarios you can look to save between 40-50% of your current debt balance and could be debt free in two years or less.

There are a few drawbacks though; one is that you must fall behind on your payments to have any creditor agree to a settlement. So your credit will suffer through this process, however once your debts have been settled your credit will rebound. Reason being 30% of your FICO credit score is based on your debt to credit limit ratio. So when you are deep in debt this will weigh your score down. But once they balances reflect zero your score will see a significant increase.

Debt settlement is much better suited for consumers who have a debt amount that exceeds $10k and who are having a hard time even keeping up with the minimums. By paying minimums it can take 30 years or more to pay it off, as opposed to only a couple with debt settlement. Plus over four times the original balance will be paid in interest alone over the course of that time.

If you're debt is becoming a problem and you need a solution to become debt free then fill out our debt settlement pre-enrollment application. One of our debt analysts will contact you to review your current situation. If you qualify we can save you between 40-50% of your current debt and put you on the road to be debt free in two years or less. Apply now it's free with no obligation!