Borrowers understand the problem with most solutions to out of control credit card debts all too well – the useful programs are also the most expensive. Filing for bankruptcy can cost thousands of dollars in legal fees above and beyond whatever the courts might charge. Meanwhile, debtors that need the service (as you’d expect) are those least likely to be able to pay. Debt consolidation of credit cards, though, is surprisingly inexpensive and may be the best alternative for a number of borrowers drowning in unpaid bills. In this article, we’ve put together some cursory information about the credit card debt consolidation program. This is just the tip of the iceberg, though. Interested debtors should always contact a certified professional in their area for a consultation in order to fully investigate their options.
Merchants have extended credit to customers since the beginnings of western civilization, but everything changed in 1950 when Diners Club first experimented with an independent credit card. Department stores and similar operations may have had their own charge accounts with customers – some may have even had plastic cards imprinted to expedite purchases or further their brand – but Diners Club was unique in that their cards were intended to be used for a number of different businesses. Starting with just a few hundred friends and associates of company founder Frank McNamara – primarily salesmen whose vocation demanded regular dinners with potential clients – and little more than a dozen Manhattan restaurants, the Diners Club had landed twenty thousand members in less than a year who could use their cards at almost a thousand different establishments.
Soon, the same company expanded into charge cards that could be used at different sorts of businesses and, a few years later, American Express and other corporations entered the quickly escalating industry. What made Diners Club so popular wasn’t just the convenience of cashless purchases, the cards provided members with access to immediate credit from businesses that had no previous experience with the customers (or reason to trust them). Didn’t seem that big of an idea at the time – since, initially, clients tended to be well off and employed at large firms – but that started the credit revolution.
Nowadays, the ordinary U.S. household boasts four credit cards and more than a dozen cards of one sort of another (including traditional charge cards for a specific business and debit cards that directly access bank accounts), and, for the a nation as a whole, there’s over a billion cards currently issued. It’s hard to even imagine the lives of most modern Americans without their daily dependence upon credit cards.
However for all of their advantages, there are just as many problems that credit cards have created. Those same households have amassed nearly five thousand dollars in debt – a significant portion of the average American’s income – and personal debt levels continue to rise. It’s not a great leap to blame credit cards for the rise in bankruptcy declarations of recent years. With ever greater availability of credit, especially for those borrowers not ready to shoulder the burdens or those who have actively demonstrated an inability to handle the responsibility, our country is starting to drown in debt. Over a million personal bankruptcies each year speak to a national addiction to thoughtless purchases that shows no sign of recovery even as the economy falters and unemployment skyrockets.
Not only do we continue to spend like there’s no tomorrow, we seem unable to save anything at all. Nobody seems to care about what happens when they retire, but, even as corporations drop pension plans and the prospect of social security disappears, escalating debts mean that Americans can expect to have a healthy portion of their dwindling retirement spent on debt payments. Do you want to be a burden on your family or reduced to accepting charity stipends? This is a very real possibility for borrowers who continue to ignore their debts.
Americans need to start thinking about their future, and one of the most important steps toward eventual financial stability is dealing with credit card bills. For the truly unfortunate, bankruptcy might be a solution, but the cost of attorneys and effects upon credit reports and credit scores (lasting up to ten years, depending on the program) makes this less than appetizing for any consumer that can avail themselves of another solution. Credit card consolidation, on the other hand, can take care of debts while maintaining borrowers’ credit ratings with relatively little damage. In this article, we’d like to discuss some of the more basic aspects of credit card consolidation so that debtors can fully understand all of the options available before it’s too late.
The basics of credit card debt consolidation shouldn’t be too hard to explain – add up all of your existing credit card debts and, yes, consolidate them to single payment. The benefits should be just as easy to imagine. First of all, those different payments and different payment schedules are minimized to just one payment. This not only helps eliminate postage and stress, but, with only one payment (often automatically deducted from bank accounts) to worry about, it’s that much less likely for borrowers to forget to send the payment in the mail and suffer the credit repercussions or late fees.
Of course, there are several other advantages to credit card debt consolidation. Interest rates should be greatly diminished. The monthly payments, as well, should be lower since, instead of combined minimums on a number of cards, there will be just the single payment, and debt consolidation counselors will help the borrower determine what they can pay after analyzing a true household budget. The result of that budget – and accompanying payment schedule – should in almost all cases ensure that credit card debts are repaid in a far shorter amount of time which will have clear positive consequence as regards both credit (since FICO scores are partially determined by debt balance) and eventual cash outlay (since the longer balances are carried, the greater the debts generated by compound interest). In every conceivable circumstance, those borrowers that qualify for credit card debt consolidation would be well advised to examine the choices available.
Now, there are a few different sorts of debt consolidation. Consumer Credit Counseling companies are probably the best known considering their seemingly ever-present advertising campaigns. The Consumer Credit Counseling approach does consolidate different cards into one account with a single monthly payment and work with borrowers on a payment schedule that satisfies the lenders while ensuring the monthly stipend is low enough that their clients can make regular payments. The interest rates are generally lowered and late or over-limit fees collected in recent years may be waived, but there’s unlikely to be any appreciable cut in actual funds owed. There is an initial cost for the debtors, though, and many of the Consumer Credit Counseling firms neglect to mention that they also charge fees to the credit card companies themselves. For obvious reasons, this makes their advice to clients worthy of suspicion, and there have been reports urging the government to further investigate the Consumer Credit Counseling industry.
There’s also the home equity loan approach. This option is also quite popular thanks to the number of commercials run (not to mention direct mail brochures and telemarketing calls), but it contains its own disadvantages. Essentially, as most homeowners already know, the home equity consolidation transfers all credit card debt to a secured equity loan or second mortgage upon existing property – typically a home. While the interest rates upon second mortgages tend to be far lower than those offered by credit card companies, they’re still far above what homeowners would expect from first mortgages and doubly so if there are already credit problems for the borrower. Considering the recent crisis in the sub-prime lending industry, these loans are harder than ever to take out, and, given falling home values across the nation, more dangerous than ever. After all, homes remain most Americans most significant investment and reducing equity in a time of national economic uncertainty shouldn’t be the smartest idea. More to the point, considering many of these mortgages are geared to fifteen or twenty or thirty year terms (or, in the case of negative amortization loans, open-ended), borrowers could end up paying their debts many times over and potentially never have their credit ratings restored. For a minority of homeowners with tons of equity and excellent credit despite out of control credit card debts (a rare breed, shall we say), the home equity consolidation approach may be something to consider, but, for most, there’s an easier and more beneficial alternative.
Debt settlement’s a relatively new industry and not quite as well known, but debt settlement or debt relief might just provide the best solution to overwhelming credit card balances. Within this program, certified debt settlement negotiators work with borrowers and creditors to lower the overall credit card debt balance in exchange for enrollment in a payment program typically lasting between three and five years. Not only does this eliminate a good portion of the consumer’s debt load in one stroke (sometimes by as much as half), but it helps the borrower be totally debt free in under sixty months. Also, in terms of credit ratings and FICO credit scores, the debt settlement programs are considered far more positive (though there will still be a notation assessed on the reports) than Consumer Credit Counseling, and future credit analysts will tend to judge the approach more favorably.
No solution to credit card debts beats old fashioned budgeting and money management, of course, but, for borrowers finding themselves in this predicament, that’s likely no longer in the cards. There are still paths out of debt that do not involve bankruptcy or second mortgages, though, and it’s the responsibility of every borrower concerned about his or her family’s financial well being to investigate every last one. As has been mentioned, the authors believe debt settlement to be the best hand of a stacked deck, but each debtor’s scenario is different. The important thing is to start taking charge of your credit accounts as soon as possible… without falling into an even worse situation.