WHAT OPTIONS ARE AVAILABLE TO REDUCE YOUR DEBT?

Debt Reduction Options

Are you struggling to make the minimum payments on your credit card balances? Are you living paycheck to paycheck? Is debt affecting other aspects of your life? Maybe you’re receiving those annoying creditor calls at work, during meals with family, or late at night. During hardship (divorce, illness, layoff, business failure, reduction in hours or pay), you may have fallen behind in your bills. If any or all of these situations sound familiar then you may require relief through debt reduction.

Our team at Professional Debt Advisors understands your situation and we are here to help. We believe our debt settlement plan is the most powerful way to reduce unsecured debt while avoiding bankruptcy. This webpage will show you the strength and weaknesses of the five most common debt reduction options: minimum payments, credit counseling, home equity loans, debt arbitrage (debt settlement) and bankruptcy. Each strategy has its own strengths and weaknesses depending on your particular situation.

Option 1: Minimum or No Payments

• Average interest rates are over 15% and creditors can raise that rate at any time.

• Minimum payments result in interest only payments with little affect on the principle balance.

• Interest rates over 24% make it impossible to pay off your debt by making minimum payments.

• Minimum payments do not reduce your principle balance and therefore do not help lower your debt to income ratio.

• There is no guarantee that your minimum payments will not increase as creditors keep the right to raise interest rates at will.

• Stopping the minimum payments will destroy your credit while not eliminating any debt in the process.

Option 2: Credit Counseling

• Credit Counseling companies are often funded by the same creditors that you owe.

• Credit Counseling is like another form of “collections” in that they charge interest and fees and simply disperse payments to your creditors.

• Credit counseling consolidates your bills into one convenient monthly payment.

• It usually takes 5 to 6 years to pay down debt in a Credit Counseling program.

• During the first three years, you will pay nearly 25% of your original balance in interest alone.

• Credit Counseling companies have pre-negotiated interest rates with your creditors that may be higher, lower, or the same as your current rates.

• Credit Counseling forces you to repay the full balance plus interest to your creditors.

• Credit Counseling companies often charge a setup free and monthly fee, often called a “donation”. Monthly fees can range from $20 to $50.

• Credit Counseling companies pay your creditors so you can remain current with your creditors while in the program.

• Credit Counseling will not have a negative effect on your FICO score; however, it will usually lead to “Credit Counseling”, “CC”, or “Credit Management” marks on your credit report. These marks are not viewed in a positive light by lenders.

• Some mortgage lenders consider Credit Counseling as being on par with bankruptcy.

Option 3: Consolidation Loans or Home Equity

• Securing a home equity or consolidation loan requires certain qualifications.

• Home equity loans require ownership of Real Estate property or a pledge of collateral.

• The future equity available in your property is reduced when you use home equity laons.

• Home equity loans can be used to eliminate your credit card balances through a lower interest rate if you qualify.

• Home equity loan rates are typically much lower than credit card interest rates.

• You will likely be required to pay a transaction fee upon closing your home equity loan. The fee is either paid upfront or built into the interest rate.

• Missing payments on home equity loans may cause you to lose the real estate or other collateral that you pledged.

• You will be able to repay the full amount of your credit card balances.

• The process of paying credit cards with home equity loans is exchanging unsecured debt for a secured debt.

• Home equity loans do not have a negative effect on your FICO score but they do not lower your debt to income ratio until you repay the home equity loan itself.

Option 4: Debt Resolution

• Debt resolution is also known as debt settlement and is simply the process of negotiating lump settlements on your unsecured debt.

• Debt resolution firms negotiate your entire principle balance down, regardless of the interest and finance charges that creditors try to add on your account.

• Debt resolution companies are independent and not affiliated with your creditors.

• Debt resolution companies charge fees but may finance the fees over time.

• Your debt can be paid off anywhere between three months and three years depending on the availability of your cash.

• Payments are not made directly to your creditors during debt resolution. This causes an “open delinquency” on your credit until the debts are settled.

• Debt resolution is not a positive on your credit and may adversely affect your FICO score.

• Debt resolution lowers your debt to income ratio faster than any other debt reduction option aside from bankruptcy. Your debt to income ratio is a significant factor used by lenders to qualify you for a loan.

• Debt resolution typically results in a 40 to 60 percent discount on your principle balance.

Option 5: Chapter 7 Bankruptcy or Chapter 13 Bankruptcy

• Bankruptcy has a severe negative impact on your credit rating for 7 to 10 years.

• Bankruptcy filing fees alone may amount to $1,000 – and that doesn’t even include attorney fees.

• Bankruptcy can have a negative impact on your employment status.

• Chapter 13 bankruptcy may still force you to repay 25 to 75 percent of your debt.

• Chapter 7 bankruptcy will eliminate all of your unsecured debt if you qualify.

• Bankruptcy will stop most creditors from attempting to collect your debts.

• Bankruptcy hurts your FICO score and may result in higher interest rates on future loans.

• Bankruptcy should be avoided at all costs as it carries a negative stigma, mental stress and other burdens.

To find out which of these options will be best for your particular situation please contact us by filling out the form on the right or by calling 866-559-3328.  Our Professional Debt Advisors are waiting to help you figure out the right option for your situation.