Consumer debt in America is growing and causing an enormous amount of stress to consumers; especially those who have weathered a job lay off or job loss. The complicating factor is that with loss of income, many consumers are making only the most minimal payment (only paying the interest but nothing on the debt itself) thus leaving the amount of debt intact and, in some cases, continuing to grow.
Types of debt that the average American citizen may incur can include student loans (sometimes the first debt for a young adult), taxes, medical bills, judgments and, of course, credit card debt.
Credit card debt is usually at a higher interest rate than that of a long term secured loan such as a mortgage, for instance.
Many credit card companies are increasing interest rates and explaining it away with rather vague language about company policy, etc. Thousands of consumers have been affected by these types of changes, causing lifestyle upheaval and leaving them to deal with a very shaky budget.
According to a recent Federal Reserve Statistical Release, Consumer credit declined 1-1/2 percent at an annual rate in the third quarter of 2010. Revolving credit (credit which is repeatedly available as periodic repayments are made) declined 8-3/4 percent at an annual rate. Credit card debt is the most common type of revolving credit.
(Debt from loans that are not of the revolving type would include student loans, loans on cars, boats, trailers, etc.)
There are several types of debt relief:
• Credit counseling. - A credit counselor will evaluate your situation and develop a plan (customized according to your budget) for debt reduction.
• Debt management. – A debt management professional will create a strategy and develop a plan to prioritize your debts according to a certain set formula (interest rate, balance, etc.). As you pay the management company on a monthly basis, they will in turn begin to pay off your creditors in a pre-planned order.
• Debt consolidation. – Debts are combined into a single loan which is gradually paid off by paying just one bill a month.
• Debt settlement. – When debts become too high to manage, too difficult to maintain, a debt settlement service can make creditors stop calling. This impartial third party service will work with you and your creditors to reach an agreement – usually a lower amount of money than is owed.
Which strategy is best for you?
