When did we all become Road Salesman?

So here's my question. Is the first piece of mail you save and open the 0% interest, balance transfer, credit card offer?  Do you open this even before you open your bills?  Do you open your credit card bills last, if at all?  Do you do so with apprehension? How is it when you pay that bill?  Do you pay in full? Do you pay the minimum due?  Do you do a private happy dance if you can pay $5.00 over the minimum due or even $10.00 over?

According to Fair, Isaac & Company, the average American household has nine credit cards. How do you fair to the American Average?  Can you relate to any of these statistics?

• 37% of consumers carry more than $10,000 in unsecured debt.
• The average consumer has upwards of  $19,000 on all cards combined.  
• One in seven uses 80% of their available credit.
• The average credit card balance is between $7000 and $10,000.
• Over 90% of American's disposable income goes to paying debts.

Please print this newsletter.  I want you to keep in with your bills, on your bedside table, on the fridge.  I want you to read it with a highlighter and mark the heck out of it until it glows in the evening light. In dealing with so many things that feel out of our control, credit card debt is something you can overcome, get ahead of and take control over.

We often talk about our mindset. 'It's never JUST about the money" When it comes to credit cards, the social narrative has tipped the focus away from what it is. "A LOAN, mind you, with interest!" That's right, I'll repeat it, credit cards are a LOAN. 

In the mad crazy world of shopping perks, travel points, extra savings if you open this account. I want you to really think about this.... A card offers you 1%, 2% up to 5% back on purchases yet you are paying 23.99% in interest.  Are you able to pay that balance in FULL each month?  If not then how is that perk REALLY working for you?   With credit being offered, marketed, and wrapped up in a pretty self-selected image imprint of American flags, kittens, or maybe you prefer hot pink or cosmic blue in your wallet?  We can quickly look upon it with rose-colored glasses forgetting its true cost.

I am big on knowledge is power, and when we understand something's origins, it can shed a whole new perspective or "mindset' to what something is.    So I have added a mini piece on the History of Credit Cards, I hope you take the time to read it as it will explain the title to our intro :) .

Today, it is hard to imagine life without credit cards. Merchants readily accept credit cards because they know consumers buy more on credit. The average credit card purchase is 12 – 18% more than if cash was used.  I want you to think about  that, "The average credit card purchase is 12 – 18% more than if cash was used." Suppose we use our American Average of $10,000 of unsecured debt; that's $1,200 to $1,800.  Think about what you could do with that extra cash.

In this newsletter, we cover many of the ins and outs of credit cards.    In changing our "mindset"  towards our debts, I'd like you to think about how many hours of work a purchase cost you in your time?  If you shop with the mindset of hours of work, you'll be amazed at how your thinking can change.  Let's say you earn $13.00 hr and find a pair of shoes for $65.00; that's about ¾ of a day's work, not counting credit card interest if you don't pay your bill in full.  Are they worth 3/4 of a day's work?  Plus interest?

A little homework for you, take each credit card bill and convert the balance you are carrying on that card to your hourly salary to determine how many working hours it will take to pay it off.  Play with the credit card calculator in this newsletter, and you'll be even more surprised.

I hope you take this month's newsletter and add it to your financial toolbox.  Remember we are here when you need us to walk through spending plans, navigate credit card debt, help develop a payment plan, or review all your options.  Though we did not focus on it, we do understand the use of credit cards for emergencies.  We understand that a crisis can occur, and that revolving credit can be all the difference in seeing the light at the end of that current tunnel.  We are here to help with those credit card issues also and work with you to get your feet back on the ground if needed.

We understand it is more than JUST about the money. 

Elbow bumps,

Leslie Boden

Director

Credit cards that are maxed out or nearly maxed out become a burden instead of a convenience. With little available credit, they no longer are useful for emergencies or other unexpected expenses, the high balances can damage your credit scores, and the debt can become unmanageable when high-interest rates make it difficult to pay down the balances.

Know When to Rein in Your Spending
No external gauge lets you know when your credit card debt is getting out of control. Your credit card issuers aren't going to warn you that your balances are more than you can afford to pay. Instead, it's up to you to watch for these 10 signs that show that your debt is out of control:

1. Cards are maxed out or above the credit limit. This can happen quickly if you don't pay your balance every month. Multiple maxed-out credit cards compound the problem. If balances exceed limits, expect the card issuer to raise your interest rate, making it even more difficult to pay down your balance.

2. You can't afford to pay anything except the minimum payment. Minimum payments are the lowest amount you can pay on your credit card to keep your account in good standing. If you can't pay more than that and you're still using your credit cards, your debt is getting worse each month.

3. You're late or missing payments. Missed payments further compromise your credit health. Late payments increase the amount you have to pay to get caught up and lead to late fees added to your balance. If your card is maxed out, those late fees could push your balance over your limit.

4. You're paying your credit cards with other types of debt. Cash advances, repeated balance transfers, payday loans, or any other form of debt to pay your credit cards simply create more debt by borrowing money to stay afloat.

5. You're using credit cards for necessities and everyday purchases. Credit cards are a convenient way to pay for groceries, gas, and other daily necessities—and you might even earn rewards points or cash back for doing so. This is great if you're paying the balance every month. If not, needing credit to pay for everyday expenses is a sign of bigger financial problems.

6. Your credit score starts dropping. If your total credit card debt is more than about 30% of your total available credit, your credit score will take a hit. This ratio accounts for 30% of your total credit score. So, if the credit limits for all of your cards combined amount to $5,000, you never want your combined balances to add up to more than $1,500.

7. Your new applications are denied. Credit card issuers may be able to predict that your credit card debt is out of control even before you do. After a denied credit card application, check your mail for a letter from the credit card issuer explaining why you were denied. If your high credit card balances are one of the reasons, it's a sign that you need to rein in your spending and start tackling your debt before it gets worse.

8. You're hiding your debt from yourself or your spouse. Feeling like you have something to hide is a sign that things are wrong. If you're not opening your credit card statements because you don't want to face your balances or you're going out of your way to keep your spouse from finding out about your debt, you likely have more debt than you can handle.

9. You can't afford to save money because you have too much debt. The more money you spend on your debt, the less you have for other things—like saving money. Without access to savings, you may have to create even more debt to get out of a financial bind.

10. You worry about how you're going to pay off your credit cards. Stressing about your credit card debt is a sign that it's definitely out of control, but don't assume that because you're not stressed about your debt that you're safe. It could be that you're ignoring your debt. Or, you could be in denial about just how bad it really is.

Stop Digging
The old adage about the first step toward climbing out of a hole applies here. In order to get your debt under control, the first thing you need to do is change your habits so that you're not making the problem worse.

Quite simply, stop using your credit cards. If you keep using them, your debt will only grow, making it more difficult to pay down. The best way to stop using your credit cards is to cut them up—especially if you're not disciplined enough to stop using them. If at all possible, though, avoid closing accounts. Since your debt ratio is an important part of your credit score, you want to grow your available credit as you pay down your debt in order to improve your credit score.

Eliminate Your Debt
Acknowledging the severity of your debt is an important first step, but you have to take action to address the problem. You have to come up with a workable plan and stick to it—and sticking to it might be the most important part. Getting rid of debt can take a long time, and results might not be evident at first. Be patient and persistent, and eventually, your efforts will make a difference.

There are multiple ways to tackle your debt, and what's best for you depends largely on your financial situation and also a little on your own personality. Consider what's best for you and your situation.

• Eliminate high-interest-rate debt first with the avalanche method. This makes sense because high-interest rates can be the biggest obstacle to eliminating debt. If you're paying a double-digit interest rate—or something even higher than 20%—it can be difficult to pay down balances. The quicker you can lower the balance on those high-interest debts, the more impact your monthly payments can have. If you still have decent enough credit, it's also worth considering applying for a new credit card with zero percent interest on balance transfers for a period of time. Adding another credit card might seem counterintuitive, but if you can be disciplined and do so only as a means to eliminate some of the interest you're paying, it's an effective strategy.
• Try the snowball method. Author and radio host Dave Ramsey popularized this method. Target the lowest balance first, then move to the next lowest balance, and so forth. While this strategy likely will result in paying more in interest than the previous method, it can be a good approach if you need a boost of confidence when tackling your debt. Because you're starting with the lowest balances, you'll eliminate them more quickly, thus giving yourself a sense of accomplishment as you work through your indebtedness.

What Is a Debt Management Plan or DMP?

A debt management plan (DMP) is a repayment plan set up by a credit-counseling agency to help consumers take control of credit card debt and in some cases also consolidate medical debts, payday loans and student loan payments all in one place.

A credit-counseling agency can establish a new payment schedule and terms that can help you pay down your debt faster and more affordably. It's typically offered to borrowers whom a credit counselor has deemed otherwise unable to repay their loans based on a review of their finances.

A debt management plan generally covers unsecured debts as stated before (loans not secured by collateral) such as credit card debt or medical bills but it cannot cover the secured debt, such as mortgages and auto loans.

If you find yourself in the position of not making your monthly credit card or loan payment or have too much debt or too many debts to know where to begin, you may want to explore a DMP to avoid defaulting on your loan or declaring bankruptcy, both of which can have a negative impact on your credit for several years.

With a DMP, you work with a credit-counseling agency to arrange a new repayment plan that alters your payment terms and payment schedule to help you better tackle your debt.

For example, let's say that Kim is struggling with debt incurred from a collection of credit cards from multiple businesses and banks. She seeks relief from a DMP as follows:

1. Kim would pay a visit to a reputable local credit counseling agency. A certified credit counselor would review her finances and determine if a DMP is recommended.
2. The agency negotiates a new payment plan with Kim's creditors on her behalf. The result of which is a much lower interest rate in many cases, the waiver of certain fees, and the repayment of his debt in five years or less. 
3. Kim then makes a single payment every month to the agency along with the service fee. The payment is distributed among her multiple creditors to pay down her credit card debt.
4. With the help of the debt management plan, Kim becomes debt-free in five years.

Is a DMP is right for you?

First, contact a credit-counseling agency like Money Management Counselors to get a comprehensive review of your finances.  You need to be honest with any counselor about the amount of debt you carry and your creditors, income, and expenses. It is with great confidentiality a credit counselor will help you budget your income and expenses and get advice on your debt, including whether a debt management plan is truly warranted and a good option for you.

In general, a debt management plan makes sense if you've reached a point where you can't manage your unsecured debt on your own and would benefit from the expert advice, modified repayment terms, and accountability provided by a DMP, which can be had without taking a long term negative credit hit.  You need to be prepared to stop applying for or using credit for five years or longer as required by the plan. If you're struggling with secured debt, or a DMP plan is cost-prohibitive, your credit counselor can guide you with alternative options.

You probably already know how important it is to make your credit card payments by their due date every month. That's because late payments can hurt your credit score more

than any other factor.

What you might not know is the fact that shifting your payment schedule ahead by a week or two can actually help your credit score. The reason has to do with the nature of credit card billing cycles, and their relationship to your credit report.

Will Paying My Credit Card Bill Early Affect My Credit?

There's a persistent misconception that carrying a credit card balance from month to month can help you improve your credit score. That's simply not true. Paying your balance in full will not harm your credit score, and carrying a balance typically means you pay interest charges, so it's best to pay off your balance each month if you can afford to do so.

Furthermore, carrying a balance that exceeds about 30% of a card's borrowing limit (also known as 30% utilization), can actually pull your credit score down, which you should avoid whenever possible.

That brings up the potential benefits of paying your credit card bill ahead of schedule. If you make a payment to your account before your card's statement closing date, instead of on or before its payment due date, you can lower the utilization percentage used to calculate your credit score. Here's how it works.

The statement closing date (the last day of your billing cycle) typically occurs about 21 days before your payment due date. Several important things happen on your statement closing date:

• Your monthly interest charge and minimum payment are calculated.
• Your statement, or bill, is generated and posted to your online account management page (and mailed to you, if you haven't opted for paperless billing).
• Your outstanding balance at the end of the billing cycle is recorded and eventually reported to the national credit bureaus—Experian, TransUnion and Equifax.

Each card issuer reports to the bureaus on different schedules, and information is often released in a staggered fashion: first to one bureau, then the next, and finally to the third. As a result, bureaus seldom have identical data on all your accounts, which is why a credit score based on data from one bureau will differ on any given day from a score calculated the same day using data from another credit bureau.

By making a payment before your statement closing date, you reduce the total balance the card issuer reports to the credit bureaus. That in turn lowers the credit utilization percentage used when calculating your credit score that month. Lower utilization is good for your credit score, especially if your payment prevents the utilization from getting close to or exceeding 30% of your total credit limit.

Even better, if your card issuer uses the adjusted-balance method for calculating your finance charges, making a payment right before your statement closing date can save you money. The adjusted-balance method bases your interest charge on your outstanding balance at the close of the billing cycle, so a last minute payment can make a big difference in your finance charges for that period. (If your card issuer uses the more common average daily balance method, which adds up your balances on each day of the billing cycle and divides the sum by the number of days in the cycle, payments made right before the statement closing date have less impact on finance charges.)

Understand Your Billing Cycle

The imprecision in noting that your payment due date is about 21 days before your payment due date has to do with a discrepancy between billing cycles and payment dates. The law requires that your bill be due on the same date each month, and of course the number of days in each month varies, but the number of days in each credit billing cycle is the same. Different card issuers use cycles of anywhere from 28 to 31 days.

You can check the length of your card's billing cycle in your cardholder agreement, or simply calculate the number of days between the start and end dates for the billing period listed on your card statement. The next statement closing date will be that many days from the billing period end date, no matter when your next payment is due.

The grace period for payments on most credit cards means you pay no interest charges as long as you pay the full amount that appears on your account statement each month. If you can afford to pay your balance in full every month, doing so before your monthly statement closing date has the benefit of ensuring that no outstanding card balance is reported to the credit bureaus—which can boost your credit scores.

When "Early" Payments Should Be "Extra" Payments

It's critical to note that "early" payments made before your statement closing date apply to the billing cycle in which you make them. If your payment eliminates your entire balance, that's fine, but if a balance remains, you'll still have to make a minimum payment by the due date listed on your next statement to avoid being considered late on your bill.

For that reason, if you routinely carry credit card balances from month to month, it may be better to think of pre-closing date payments as extra payments, rather than early ones. Making multiple payments to credit card accounts is a time-honored approach to keeping a lid on your debts and promoting good credit scores.

When Is the Best Time to Pay My Credit Card Bill?

The only bad time to pay your credit card bill is after your payment is due—a mistake that can have significant negative repercussions for your credit score. But paying your bill in full before your statement closing date, or making an extra payment if you'll be carrying a balance into the next month, can help you cultivate a higher credit score by reducing the utilization recorded on your credit report—and save you some finance charges to boot.

The History of Credit Cards

Although the idea of "have now, pay later" has been around in one form or another as far back as the 1700s, using a credit card originated in the United States in the 1920s when oil companies and hotel chains issued them to their customers.  These types of cards and the ones to follow were created for convenience while on the road.   Think about this as it relates to how you use your credit card today.

In 1946, John Biggins of the Flatbush National Bank of Brooklyn invented the "Charge-It" card. It was the first bank-issued credit card.  A Merchants could deposit sales slips in the bank, after which the bank would then bill the customer who used the card.

In 1951, Frank McNamara had dinner at a restaurant, but he realized he had forgotten his wallet when he went to pay his bill. This embarrassing situation propelled him to invent the Diners' Club card. Initially, 200 of these cards were issued for use in 27 New York restaurants. Technically, they were "charge cards" in that the entire amount had to be repaid in one payment.  Again, think about this also 200 cards for use in 27 New York restaurants.  When was the last time you went through a Drive-Thru window and paid cash?  Now think what that drive-thru meal is costing with interest.

American Express, which began in the traveler's check business, issued its first card in 1958. As with earlier cards, it was primarily designed for on-the-road convenience. During this period, the traveling salesman was an integral part of the American business landscape.  Can you remember the traveler's checks?  How many of you remember signing all those checks at the bank before you'd go on a trip? Again, can you see the familiar theme of "on the road" convenience?

Later in 1958, Bank of America offered the Bank Americard within the state of California. Shortly after that, the name of this card was changed to VISA.

The early 1960s saw more companies entering the credit card arena. They were still advertised primarily as time-saving rather than as a form of credit. Can we start to see how marketing is beginning to show up more predominately? By 1966, American Express and MasterCard became huge overnight successes marketing mainly to the traveling salesman.  Do you think the average traveling salesman of the '60s pulled out their credit card and charged things like a new refrigerator or bedroom set or went on a shopping spree at a 50% off end of season sale? I am guessing not.

In 1970, credit card use increased dramatically due to the establishment of standards for the magnetic strip. The system of a magnetic strip initially called a "stripe" was first used by the London Transit Authority in the early 1960s.  Who would have thought a magnetic strip could make such an impact, and now we have chips.

The United States Congress began regulating the credit card industry in the mid-1970s. They banned such practices as the mass mailing of active cards to people who never requested one. Can you imagine the national debt averages if this practice was still enacted?  How do you perceive getting 10% or 20% off your first purchase if you open a card at a store?

However, the pendulum swung the other way in the 1990s when many restrictions on creditors were lifted. This deregulation allowed creditors to charge high late fees as well as higher interest rates.

In 1987, American Express offered its first card that could be paid off over time.  The original American Express Cards had to be paid in full each month.  The Discover Card, part of Sears Corporation, came after that.

This video is older, 2004 and there have been substantial changes in the industry but having an understanding of the "then" and knowing the "now" gives you more tools to put in your toolbox to becoming Financially Healthy. 

Learning your credit scores shouldn’t be the end of your credit evaluation.

Your credit reports from the three major consumer credit bureaus can help shed light on why you may have been turned down for credit, how negative information may affect your credit, and whether someone tried to fraudulently apply for credit under your name. TransUnion, Equifax and Experian each issues separate credit reports, which may contain information about your credit activity, payment history and the status of your credit accounts based on reporting from creditors and other sources.

So why are these reports important? 

Because credit card issuers and lenders pull and review them to help determine things like whether you’re a credit risk, what interest rate they’ll offer you, and the amount of your credit limit. Your credit reports may also be reviewed when you’re renting an apartment or purchasing insurance. 

With so much information, where do you even start when it comes to reading your credit reports? Let’s take a look.

What’s in a credit report and why it matters

Credit reports are typically divided into six sections.

1. Personal information

Identity information on your reports may include your:

Name, Social Security number, Birth date, Address, Phone number. If you find incorrect identity information on one of your credit reports, you can file a dispute or an update with the reporting credit bureau to change it. You can also notify the creditor that reported the information and request that it send an update to the credit bureau. 

2. Employer history

This may be included in the personal information section. You can file a dispute to change outdated information or add missing employer information, but it usually isn’t necessary. Employer information listed on the reports is typically there to help verify your identity.

3. Consumer statements

This section may contain any brief statements you’ve submitted to a credit bureau. For example, if you disputed an item and the investigation didn’t resolve the dispute, your statement might explain how you disagree with reported information.

4. Account information

This is where you’ll find specific details on your accounts, including: Open accounts, Closed accounts, The dates accounts were opened or closed, Payment history, Credit utilization, Current account balance, Loan payment status

“If you’re paying bills on time and in full each month, this section will reflect that the account was paid as agreed,” says John Danaher, president of Consumer Interactive at TransUnion. “However, in the event a loan goes into collection, this section will reflect the delinquent payment status instead.”

Late payments can stay on your credit reports for up to seven years from the date you missed the payment before they’re removed by the credit bureaus. The Consumer Financial Protection Bureau recommends watching for the following errors:

Accounts belonging to another person with the same name

Accounts created through identity theft

Incorrect payment history

Wrong balance or credit limit information

Reinsertion of previously corrected data

5. Public records

Public records may include bankruptcies, foreclosures, tax liens and civil judgments against you, all of which can hurt your credit.

6. Inquiries

Hard inquiries can negatively affect your credit scores. But that’s not the only reason to watch this section closely. Hard inquiries generally occur when a financial institution checks your credit after someone has applied for credit in your name. This means that an unauthorized hard inquiry on your credit reports can be a problem, according to credit expert John Ulzheimer, president of The Ulzheimer Group. Unauthorized hard inquiries that you don’t recognize could be an indication of identity theft.

Reports from AnnualCreditReport.com don’t include your credit scores, but if you sign up for a Credit Karma account, you can see your Vantage Score 3.0 credit scores and reports from TransUnion and Equifax, as well as have the ability to monitor your credit scores and credit activity as often as you like.

How to read credit report codes ?

You’ll find a variety of different codes on your credit reports. Each major credit bureau has its own codes though, so don’t assume a code used by one bureau means the same thing on another bureau’s report. Each bureau offers a guide explaining the codes you’ll see on that particular bureau’s report.

Get your hands on all three reports at once by ordering them at AnnualCreditReport.com. You’re also entitled to a free copy of your credit report from a credit bureau that provided a report to a creditor that declined your credit application.

Next steps

Knowing how to read your credit reports can help you learn how you can improve your credit. It’s also important to monitor your credit reports regularly to keep an eye out for possible identity theft and fraud.

(About the author: Deb Hipp is a freelance writer with a bachelor’s degree in English and creative writing from the University of Missouri-Kansas City.)

How to Get Out of Credit Card Debt Without Paying Everything You Owe

By Bruce McClary 

Debt is tough. Sometimes it is hard to imagine getting out of it, and you can feel like your back is against the wall. One idea, that sounds good in theory, is to somehow get out of debt without paying it all off. Of course, this is an appealing strategy, but pursuing it can cause more harm than good. Here are the ways you can technically pay off debt without paying everything you owe, along with important reasons to consider other options instead.

Background

In this article, we are talking specifically about credit card debt. There are other types of debt that have “forgiveness” options, such as student loans. However, there are not typically formal “forgiveness” options through major credit card companies. When you use your credit cards, creditors have the full expectation that you will repay the money. After long periods of missed payments, your creditors may lower these expectations and charge-off the accounts and send them to collections. After this period, there may be opportunities to pursue alternative payment arrangements for less than what you owe. However, these always accompany damage to your credit score.

Settlement

Debt settlement is an agreement with a creditor to pay less than what you owe but still have the debt considered satisfied. There are two general types of debt settlement. The first is debt settlement that you negotiate on your own. We call this “DIY debt settlement.” The second type is a professional debt settlement. In a professional settlement, you work with a settlement firm that manages your debt reduction strategy.

Unfortunately, professional debt settlement is an extremely risky option that rarely works out in your favor. There are two reasons why you should avoid this option at all costs, no matter how good it may sound. First, you can cause significant damage to your credit score when you work with a debt settlement firm. Debt settlement revolves around a scheme in which you avoid paying creditors and you send payments to the settlement firm instead. Settlement firms claim that your lack of payment gives them negotiating leverage with creditors, and they are able to offer lump-sum payoffs to the creditors from the money you have been sending them. However, not only does this rarely work (more on that in a moment), but it wreaks havoc on your credit score. You will rack up delinquencies and other negative marks if you follow the scheme. Even if your settlement is successful, that will cause more credit score damage because settled accounts are listed on your credit report.

Second, debt settlement has a very low success rate. So not only can your credit take a beating, but it may take a hit without you ever seeing the purported benefits of actually settling your debts. Studies have shown that most debt settlement clients do not settle half of their debts, even years into the debt settlement process. Very few people are ever able to settle all of their debts when working with a settlement firm.

Debt settlement is not cheap, either. You can expect to pay fees between 15 and 25 percent of the enrolled debt. On top of that, if your debt is forgiven then the forgiven amount is treated as taxable income!

As you can see, while settlement sounds like a good shortcut it can create significant headache, expense, and credit damage, and it may leave you much worse off than you were before.

What about DIY settlement?

While working with a firm to achieve a debt settlement has many drawbacks, negotiating a settlement on your own can be a more viable and safe alternative. However, it is not perfect and only makes sense in a few situations. To achieve DIY debt settlement, you would contact your creditor and negotiate a lump sum payment for less than you owe that the creditor would accept in exchange for considering the account satisfied. If you reach such an agreement with a creditor, you must get the terms in writing. Otherwise, you risk paying a lump sum without being able to prove that the creditor agreed to accept it as a settlement.

DIY settlement can be difficult to achieve before your account is charged off by the creditor. Creditors just do not have much incentive or interest in accepting a settlement offer until you are very far behind. By that point, your credit score will likely have taken a pretty big hit. Additionally, a settlement you negotiate on your own can still be reported to the bureaus. Therefore, while DIY settlement is safer than working with a fly-by-night settlement firm, it does have many of the same drawbacks. The main advantage is that you can avoid the fees charged by a firm.

Bankruptcy

Another debt relief strategy that may provide for partial debt forgiveness is bankruptcy. There are several different types of bankruptcy, but individuals usually file for Chapter 7 or Chapter 13 bankruptcy. Whether you can file for Chapter 7 or Chapter 13 depends on your income and whether you qualify for Chapter 7 under the “means test.” Chapter 7 bankruptcy is a fairly quick process and can wipe out your unsecured debts through what is called a “discharge.” Chapter 13 bankruptcy can also provide for a discharge, but typically only after you complete a repayment plan, which takes three to five years.

Bankruptcy can cause major credit damage. The lead up to bankruptcy will create significant harm, but even the bankruptcy itself will be reported to the credit bureaus. Chapter 7 bankruptcy remains on your credit report for 10 years, while Chapter 13 remains for seven years.

For some, bankruptcy is the best option for moving forward.  Particularly if you are eligible for Chapter 7 bankruptcy, it maybe your best option moving forward. However, it is a very serious decision with long-term consequences and should always be thought of as a last resort. Those who are not eligible for Chapter 7 may find that there are more favorable alternatives to bankruptcy that will create less long-term harm.

Better Options

There are better options than debt settlement and bankruptcy. If you are struggling to make your payments then you may benefit from changing the terms of what you owe rather than attempting to pay less than your full balance.

Consolidating or refinancing your credit card debt is one way to make it cheaper. You could roll your debt into a new account with a lower interest rate which, could make your payments cheaper and accelerate your repayment. However, if your credit score is not very good then you likely will not qualify for good rates, and this method will not make financial sense for you. Do not fall for the trap of a “consolidation loan” with terrible terms that really does not make you better off.

For most people, a debt management plan may be the best option. This program provides for a structured repayment plan to pay off everything you owe under the direction of, and with the help of, a credit counselor. Typically, debts on the plan qualify for waived fees and reduced interest rates, which means that the plan provides many of the same benefits as consolidation while still being a viable option for people with less than stellar credit.

Recap

Paying less than what you owe sounds like a great solution when you are in debt. But the methods that can turn this dream into reality have very serious negative consequences. If bankruptcy is the best way forward for you, then should certainly pursue it. Just remember that it is a last resort, and you will want to consider other options first. Debt settlement, on the other hand, is seldom a good idea. If you can negotiate a settlement on a debt that is already overdue then that may be a good solution. But you should stay away from professional debt settlement firms at all costs.

If you can’t have any debt forgiven, you can still receive helpful modifications, such as lower interest rates. Alternatives like this can make your debt load easier to manage without harming your credit score to the same extent as settlement and bankruptcy. If you would like help reviewing your options and making a plan to move forward, you can contact a credit counselor for free assistance.

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