In these times of financial peril, with unemployment rising and property values falling like a sped up game of macro economic chutes and ladders, most every American feels the crunch of debt loads they had accumulated in happier times. Alas, as seems the eternal nature of credit freely given absent responsibility or the proven ability to repay obligations, capricious purchasing and sloppy household budgeting have effectively undercut our national character. The United States of America was built upon a tradition of self reliant labor independent of feudal allegiances, but, as the constant usage of credit cards and the accompanying unsecured debts grew alongside home mortgages and automobile loans, we may have lost track of an essential element of our native spirit by abandoning the steady accumulation of savings as an integral part of financial development for the country as a whole. Credit card debt has become a veritable cancer upon the American economy with millions of our citizens facing bankruptcy or worse as they succumb to an endless succession of bills.

It is so easy, these days, for American consumers to lose themselves in the thicket of debt and credit accounts. For too many of us, bankruptcy (giving up, really; admitting there would be no workable solution to debt management) can seem the only way out of their crushing burdens. Economic issues were not always conducted in this manner. Bankruptcy used to carry with it an immense stigma and credit of any sort was once believed to be the solace of the weak and vaguely criminal, but so much has changed. Most every commercial advertises the necessity of plastic as an implement of modern society. An individual’s credit rating (and the credit cards that, to be sure, help garner those all important FICO scoring system points) is considered more important than actual income history when determining worthiness for home mortgages or investment opportunities – or even, more and more, potential employment. Everything about the system has gone thoroughly wrong, and, to a large degree, our current national financial difficulties may be seen as a thoroughly deserved case of chickens coming home to roost. The United States has found itself increasingly dependent upon debt merely to keep the markets humming, but one cannot rely upon credit cards forever.

Indeed, by counting upon madly driven consumer purchasing that has been expected to overcome the necessary down cycles which every economy must deal with at one time or another, we have lost sight of the importance of savings both as a citizenry and as a nation. Perhaps, even just a few years ago, we could have attempted to change the direction our spending habits (and market capitalization) were inevitably heading towards, but, with the recently plummeting stock market and string of band failures, it’s probably too late to ward off recession. Instead, consumers (and, once again, the nation in general) must concentrate upon proper debt management while trying to best repair the damage that credit card bills and towering financial obligations have already wreaked without resorting to bankruptcy protection or other potentially ruinous solutions. Had more households (and our supposed economic leadership, for that matter) taken care of their budgets and spending patterns when times were relatively healthy, then such steps would not have been necessary, but, with unsecured debts – primarily those of credit cards – threatening untold Americans, it is now all that we can do merely to ensure that things do not get worse.

In this way, your authors strenuously insist that all borrowers reading this article do whatever they find reasonable to rid themselves of virtually everything that they owe. Even those of you that have not yet hit bottom and, while perhaps still nervous about your ever climbing credit card debts, are just curious about one of the programs newly available for borrowers anxious to avoid bankruptcy should the worst happen, would be wise to recognize the importance of truly understanding the repercussions of maintaining any sizable debt balances regardless of your family’s current financial status. After all, no matter how impressive your income at present and no matter how seemingly unlikely the potential for unpaid credit card debts to present the sort of problem that could force Chapter 7 bankruptcy or any sort of desperate stabs at debt relief, even the wealthiest of households are but one or two bad turns away from calamities that could severely harm their base finances. Emergencies and accidents, by dint of their very nature, are not to be anticipated, of course, but, at the same time, that does not mean one can not reduce debts, make certain future payments would not cripple eventual budgets, and instill correct spending and purchasing behaviors to assist borrowers in the event of untoward economic disasters.

Once again, we are largely worried about the unsecured sort of debts; they are the true cause of the grand majority of Chapter 7 bankruptcies. Business loans and mortgages for primary residences and vacation or investment properties, as long as the purposes behind the loans have been intelligently chosen and the interest rates and terms are in order, should ideally be looked upon as advantageous to household economics. Automobile and other vehicle loans (though, as we will continue to underline, the specific aspects and fine print of each note should be analyzed to the nth degree and compared to similar offers) are, we suppose, a component of modern life it would be foolish to deny. Though, at the same point, in this age of escalating gas prices, many borrowers concerned about their debt loads are trading in their larger cars, trucks, and sports utility vehicles for mid size options with greater fuel efficiency so as to better pass on the savings toward paying down their credit card bills. This is precisely the sort of forward thinking consumer decision that allows for greater leverage when managing debts and saving for the future – and, we do understand, buying cars can be remarkably fun regardless of how genuinely beneficial the ultimate action may turn out to be for the purchaser.

Even for those borrowers who have made poor choices as regards real estate investments (even those who find themselves unable to live without their favored vehicle whatever the vehicle’s mileage) are, at the end of the day, only maintaining debts that they have already taken out and in which they already have amassed some degree of equity. Of course, such traditional tenets of finance are not necessarily true in this age of negative amortization mortgages and loans which demand nothing more than interest payments that never quite seem to touch the principal balance. Unfortunately, as loan officers have become more adept at flattering their clients’ sense of themselves as ultimately wise and thrifty consumers, more and more families have been suckered into believing that, despite all extraneous evidence to the contrary and the warning of any trustworthy debt counselor or economic advisor, they will break a lifetime’s habits and suddenly decide to pay more than the minimum each month. The increasingly elaborate schemes cooked up by mortgage lenders and credit institutions indulging the recent lapses of governmental regulations first allowed such theoretically professional (and federally licensed) Three Card Monte financial wizardry, and a sadly elevated portion of our citizenry yet falls for such financial stratagems apart from all of the clearly risky portends. The point of secured loans, after all, is to pay them off and inevitably be left with the ownership of whatever you had originally intended to purchase. Not just do interest only (or, God forbid, negative) debts virtually never result in such a change of ownership; these types of loan rarely benefit anyone besides the lenders.

Nevertheless, car loans and home mortgages, however disappointing the terms may be once the borrowers have completely realized precisely what they are liable for after compound interest rates have their sway, aren’t really the sorts of debts that consumers need be most apprehensive about. Unsecured loans, those revolving personal debts that carry sky high rates and boast minimum payments that for all intents and purposes were never made to be actually paid back to the lenders, are the true villains within this saga. Credit cards, by presenting such unprecedented avenues toward easily justified and damnably convenient debt loads that truly do sneak up on unsuspecting households, and the multinational conglomerates that continue to tempt consumers with bright and shining rationalizations toward unnecessary purchases – these entities deserve the brunt of our scorn. By every reckoning, credit card accounts must be eliminated before any other economic strategies should be considered. Compound interest shall only increase the funds that are owed, after all, and these credit card debts will not go away on their own. At the same point, though, that does not mean consumers must rush headlong toward bankruptcy protection!

The advantages of bankruptcy do not, we are assuming, need be further defined to Americans of any age. Correctly undertaken, which happens less and less after recent congressional tinkering weakened the protections guaranteed past generations, Chapter 7 bankruptcy protection could erase many types of unsecured debts (student loans, alimony, and a host of obligations to be excluded, of course), but, even ignoring how very difficult Chapter 7 debt elimination may be to effectively declare these days, there are so many troubles associated with the measure. The lingering damage to credit reports and FICO credit ratings are well known, of course, but consider also that (after the previously mentioned 2005 legislation) courts have far more leeway to seize the property – even ordinary possessions or precious family heirlooms – for auction to pay back those debts formerly owed to the credit card companies. Much as you may want the accumulated credit card debts to vanish, however tired you may be of harassment from bill collectors, Chapter 7 bankruptcy may cause as many problems as it hopes to solve. For many borrowers, the cure of bankruptcy may truly be far worse than the disease of credit card debt.

Even beyond the costs of bankruptcy attorneys and potential for charges of fraud should even a single portion of the Chapter 7 documents be filled out incorrectly (whether accidentally or not; the Internal Revenue Service has taken an active role in aiding bankruptcy courts with predictable results), so much of your family’s future will be dependent upon the discretion of a trustee arbitrarily chosen by the government. Much as I think everyone appreciates the temptations of credit card bills that would be suddenly eliminated minus strife or effort, this notion is actually more of a myth propagated by the media and mercenary politicians on the string of the credit card companies. While there clearly needs to be some sort of protection made available for hapless borrowers who have suffered some sort of dire mishap genuinely preventing them from any realistic attempt at personal debt management, most families that remain even somewhat solvent should first try their hand at correcting their household debts from within. Talking with concerned borrowers from around the nation, we have assembled a few suggestions for debt relief with which households have successfully taken care of their own financial burdens independent of government assistance.

The first step to any financial overhaul has to start with the household budget. Most every family or individual maintains their own notion of budgeting, of course, however vague or regularly misapplied, but we are talking about a disciplined attempt to actually restrain spending. We know, we know, you’ve done the same yourself – on Sunday morning, it is so easy to be convinced that the credit cards will remain in the drawer – only to find out that funds have disappeared from the account seemingly without your knowledge. Easy enough to sit down and look at the major expenses and monthly utilities, but what about the spending you do not remember? Here’s one tip: take a notebook around with you whenever you leave the house and record every single purchase that you make. We guarantee that the results will surprise you. The morning coffee before work, the family trip to the game, the magazine picked up at the supermarket: all of these expenses, however minimal they may seem at the time, do add up. Credit card debts are built upon a foundation of thoughtless purchasing, and, until families attain some realistic knowledge of their actual habits through constant monitoring of where their cash really goes, no proper budget could ever survive. The foundation of bankruptcy is the mid day cocktail or the extravagant tip for a charming waiter forgotten as quickly as the credit card slips through the machine. It’s one of the oldest adages, but it is not without merit – there’s no such thing as a free lunch.

Cash, cash money, as the saying goes, and, for consumers that have been drawn to the (literally, aside for this current sliver of economic history) fantastical notion of spending without remorse or even notice, the most recurring suggestion that our correspondents continually advise would be to simply leave the credit cards at home. Perhaps, for those consumers truly addicted to the act of spending, cutting up the credit cards may be a necessary precaution, but – much as the importance of keeping up credit ratings through amassing credit is over stated by the press – open credit accounts (proving, in other words, a consumer’s capacity to already borrow regardless of their current debt applications) does make a difference with regards to debt analysts. This is one of the most important reasons why debtors should avoid bankruptcy at all costs. Once credit accounts have been closed, even at the borrower’s request, it is that much harder to bring them back. However, this does not mean that borrowers must use such accounts! Putting the credit cards into the drawer or having a trusted friend or family member take hold of your cards to ensure that they will not be misused is one of the fundamental tenets of effective debt management.

To be honest, when your authors have talked to borrowers that have successfully figured out how to provide their own debt relief solutions, the most common advice tended to actually surround all of the things that debtors should NOT do when repairing their finances. Primarily, of course, any holder of credit cards should never take advantage of the cash advance option (which, we should underline, almost always features higher interest rates and additional fees) and especially not do so to temporarily afford the minimum payments requested by other cards. In the same way, though for a minority of borrowers already planning upon a change of residence or sudden alteration of circumstances, home equity loans taken out with the intention of consolidation of credit card debts must be considered a gateway to financial ruin. Any sort of measure that threatens your eventual security, whether by threatening the equity of your property or borrowing upon your Individual Retirement Account, should flash warning signs. The family home and the bread winner’s IRA account should remain sacred and never to be touched. Much as credit card debts harm finances, the consumer’s shelter and continued income are always to be deemed more important.

Once again, most of the suggestions for debt management that we hear again and again are little more than common sense – mow your own lawn, bring lunch to work, do whatever’s necessary to save a few dollars every day that will pay down credit card bills – but they do seem to honestly help debtors avoid bankruptcy through their own endeavors. At the same point, there are other agencies unconnected to the government which seem to have been of some use to our correspondents. Consumer Credit Counseling, despite their advertising fueled popularity, has about the same effect upon their clients’ credit scores as Chapter 7 bankruptcy declaration and does not even pretend to eliminate the debts involved. The Consumer Credit Counseling companies merely lower the interest rates through compiling debts and (in the manner of fitness trainers) charge borrowers to help them help themselves. Moreover, as recent exposés have made clear, many of these companies are in the thrall of the credit cards and ask undocumented fees from the lenders alongside whatever’s asked of their debtor clients. There’s a point to the service, of course, but not one of much use to wise borrowers.

The debt settlement solution, on the other hand, has been of great advantage to consumers. While essentially offering the same sort of service that the Consumer Credit Counseling programs (or, even, the Chapter 13 bankruptcy protection) pretend to provide, debt settlement specialists have no attachment to the credit car companies. In fact, their business success depends upon a certain rivalry with the representatives of the lenders so as to most efficiently haggle over the lowest possible balances. Within the debt settlement system, professional negotiators take on their clients’ debts only when they believe there is a good likelihood of decreasing the overall funds owed to their creditors. Using the threat of bankruptcy, the more skilled debt settlement professionals are able to cut their clients’ credit card debts by as much as sixty percent! Every situation has their own peculiar parameters, once cannot make claims about managing or relieving another man or woman’s debts without fully studying their individual problems, but there are a few elements we find to be common among the varied consumers with whom we regularly speak.

To financial professionals, debt settlement appears far different from the bankruptcy or Consumer Credit Counseling alternatives if for no other reason than the industry’s reputation. Those settlement companies that have continued to arrange beneficial negotiations for their clients do so without overly compromising their debtor clients’ credit ratings, and, above all else, they make sure that those consumers with whom they choose to work understand the reasons why they are in such dire straits and how to prevent such circumstances from recurring. The debt settlement companies haven’t the luxury to coast upon advertising campaigns. These sort of businesses live and die from word of mouth and the reputations they can only grasp from lowering their borrower clients’ balances. Any consumer who has firmly studied the debt settlement option knows, beyond the limited effects upon their credit, that the DS solution (if the settlement companies agree to work with the borrower) would be advantageous. Bills will be paid, FICO scores will not be ruined, and, in the most important of arenas, credit will be maintained. As with any of these suggestions, every borrower should investigate for themselves, but they should do with strength and clear vision. It is not about avoiding bankruptcy. It is about clearing credit card debts so easily that you will wonder why bankruptcy even exists.

By Bethann

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