As the number of consumers mired in credit card debt continues to surge - here in Ohio and nationally - countless numbers of consumers are seeking to escape the debt crisis and get out of debt in the best way possible.
And while the federal government has provided bank bailouts and assistance to a wide assortment of financial institutions, government bailouts for individuals have failed to materialize. There is no such thing as a state or federal debt relief for consumers, or debt bailout or credit card debt bailouts for consumers.
There are however, a variety of debt management options offered in the private sector, most notably: credit counseling, debt management plans, debt consolidation, and even debt settlement options. Although the process of how complete debt relief is achieved will vary, all debt management options aim to help to reduce debt or help individuals break free of the burden of debt, while hopefully saving consumers a substantial amount of money in the process.
To see what debt relief could do for you and how much you could save, get your free debt relief analysis and savings quote now.
How Debt Management Programs Work
It's no surprise as monthly credit card bills begin to mount, and minimum payments are the norm and unpaid balances begin to soar, that stress can begin to take its toll on individuals and families. Fortunately, today's consumer has more than one way out. Thanks to a number of debt management plans and their proven solutions, consumers have the opportunity to get on a manageable plan to get out of debt, and save money as well.
Here's a review of various programs and how they work to help consumers in need of debt relief:
Credit Counseling Debt Management Plan
A well-executed credit counseling debt management plan helps a consumer combine or consolidate his or her credit card and other unsecured debt into a single, more affordable, more manageable, monthly payment. The road-to-recovery begins with proposals made on behalf of the debt-relief seeker initiated by the credit counseling agency. Proposals include requests for lower interest rates, removal of late fees and penalties - basically an attempt to seek greater leniency from the credit card companies and other unsecured debt holders. More manageable repayment terms and a faster-track to debt elimination are basically the end-game objectives when deciding to go with a Debt Management Plan (DMP). Each creditor owed, in order to be part of the DMP, must accept terms which allow the debtor to make one single payment to the credit counseling agency, who in-turn distribute monthly payments to each creditors who has accepted the agency's proposed terms and debt-payment plan. Credit counseling agencies also provide much-needed debt management advice for individuals and families suffering from the stress brought on by out-of-control debt. Credit card debt consolidation - under a Debt Management Plan - will also help reduce that stress, providing relief while simplifying the lives of those suffering from out-of-control debt. It may help the consumer get out of debt faster than going it alone, reducing debt sooner with lower interest rates and as part of the DMP strategy, better terms. While consumers have the right to design their own debt management plan and negotiate lower rates with credit card companies and other creditors, many consumers may lack the fortitude and persistence to communicate and negotiate with credit card companies, either via the mail or by waiting on line to talk on the phone with various levels of representatives and supervisors that present a gauntlet for the consumer to endure.This can be a maddening and frustrating process. The fact is, credit card companies may be more open to agreeing to accept a proposal from a credit counseling company on behalf of a consumer than they would from a consumer begging and pleading on the other end of the phone. The bottom line, credit card companies may be more more likely to extend relief if they truly believe they have the credible information they need to support the fact that an individual or family truly is in difficult straits. This is not to say that consumers cannot do whatever they can to request reductions in interest rates and more favorable terms on their own.
Credit Card Debt Settlement
As the name "debt settlement" indicates, this type of debt relief differs significantly from the debt consolidation strategies offered by credit counseling agencies. Consumers who choose a Debt Management Plan commit to pay back ALL THAT IS OWED, but generally at lower interest rates and at a more affordable pace. Consumers choosing Debt Settlement, aim to NOT PAY BACK ALL that is owed, hoping to "settle" their credit card and unsecured debt for substantially less than what is actually owed. Typically the Debt Settlement option requires that consumers stop making payments or paying their regular monthly credit or unsecured debt, opting instead to "set aside" those funds for the creation of a lump-sum that can later be used to make a settlement offer - in hopes that this offer will be accepted by a credit card company to achieve a satisfactory settlement.
As the term implies, the credit card companies have the right to settle or not to settle. It should be noted that as the consumer decides to stop regular monthly payments - despite the fact the consumer is gathering funds for the lump sum - that credit card companies can initiate legal action against the consumer for not meeting monthly obligations. In addition, the consumer's credit can be affected by non-payment. The consumer's objectives, despite any potential downside, are to accumulate enough money to eventually make a reasonable settlement offer to the credit card company involved. It must be remembered, however, that how much a consumer can or cannot save via debt settlement is dependent upon a variety of factors, including: the actual companies involved, their corporate policies related to debt relief, and of course, the size of the credit card debt itself. There is no consumer guarantee nor does the law require credit card companies agree to any settlement offer, even if a consumer offers to pay 99% of the debt.
The reality of the economic times, however, indicate that credit card companies are often willing to accept a reasonable settlement offer from consumers in distress. Credit card companies realize that they often fare better with a debt settlement offer than by selling-off debt to a third party debt collectors, sometimes for as little as ten cents on the dollar. When they know they may only get ten cents on the dollar by selling off "bad debt", they are open to better offers even though this is something that the credit card companies do not widely publicize for obvious reasons.
In comparing debt relief options, debt management plans including debt consolidation or the management of debt through the use of credit counseling is often considered by many to be the "more honorable" form of debt relief. Despite this, debt settlement is an increasingly popular option as common sense dictates that credit card companies be open to reasonable settlement offers from consumers on the financial brink. Related to debt consolidation loans, it's important to note that people considering this loan option should consider the risks associated with these type of loans. Default on a debt consolidation loan and the assets used to secure or collateralize the loan (house, car, boat) could be put at serious risk. It is tempting, when facing high interest rate credit cards and other debts, to consolidate and achieve a lower rate or payment through the use of consolidation loan. Those consumers lacking the proper discipline to handle such a loan with care and discipline, however, should consider the risks carefully.
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