Financial disaster can strike anyone at any time. It most often takes the form of a medical emergency, job loss, or divorce, but the severity of the impact of a financial crisis varies widely.
Families with a savings cushion and no credit card debt can typically weather a short-term storm with few lasting effects. But for families living on the edge financially, job loss or a severe illness can push high credit card balances past their limits, leaving them unable to meet even basic financial commitments.
I suspect you are reading this book because you fall in the latter category. At this point, the damage is likely done, and you are weighing which option is best for you and your family. Whether it is credit counseling, debt settlement, or even bankruptcy, it is important to not only focus on your options for getting out from under your debt, but also to gather the tools that will help you build a healthy financial future after your debt has been resolved.
Before embarking upon any “debt reduction” effort, it is important to understand the options available and whom they are best suited for. There are three basic ways to alleviate debt — each very different, and each with its own impact on your credit score and total debt. If you have yet to file for bankruptcy or become involved with a particular debt relief alternative, weigh each of these options and determine which is the right fit for your unique situation:
Credit counseling does not reduce principal balance — only interest and fees. This option is best for consumers not completely overwhelmed by debt and who are looking for a way to better manage their finances. Credit counseling typically includes a financial education and budgeting component in addition to the actual debt management plan.
Debt settlement is more aggressive than credit counseling and involves a third party negotiating with your creditor to reduce the principal amount owed. This is a great option for consumers interested in avoiding bankruptcy at all costs. To learn more about debt settlement and get a list of accredited debt settlement companies, visit www.usoba.org.
Bankruptcy is the option best suited for people with the most severe and unmanageable amounts of debt. While bankruptcy might feel like a quick fix, it carries the most long-lasting impact to your credit score and financial reputation. You can read more about bankruptcy and your filing options in Chapter 2 of this book.
Bankruptcy, while scary, is sometimes the only choice a consumer has to get out of debt. Consumers should not let fear keep them from doing what is best for their financial situation.
What is most important to remember is that there is no easy or quick fix. Any program that is designed to help you get out from under crippling debt is typically going to be a long process, and one that involves sacrifices on your part. Conduct research and make comparisons before making any decisions so you know exactly what you are signing up for, how long it will take, and exactly how it works.
The good news is that in most cases, once your debt is paid off, settled, or “forgiven” via bankruptcy, you have a fresh start. You will need to begin rebuilding your credit to demonstrate to banks, apartment landlords, creditors, and even potential employers that you can be trusted to meet your financial commitments. Chapter 7 provides excellent tips and tools for rebuilding your credit score, but the main idea is to start with a secured line of credit, pay on time and as agreed, and demonstrate your new financial responsibility. Following is one such story of rebuilding financial security:
My name is Penny. My husband had severe health issues that resulted in us having to close our family business. Due to the business debt, a great deal of which was in our personal name, we had to declare bankruptcy.
My husband was unable to work, so I had to return to the job market, and we had to use our credit cards for many necessities in life (e.g., doctors and hospital bills, medicines, and vehicle expenses). The debt kept climbing, and our income was stagnant.
When I heard about debt settlement, for the first time I thought that maybe there was light at the end of the tunnel. After a personal consultation and review of my financial situation, I was told I qualified for the program. I told my account specialist I wanted to get this settled as quickly as possible, so we set it up for an 18- to 24-month program.
I stuck to the program, and when the first debt was settled — what a wonderful feeling. Once I was able to tell the creditors that I was in a debt management program, the harassing telephone calls stopped, the threatening letters began to come less and less, and my husband and I could begin to see a brighter future. The monthly calls from my account specialist were a comfort — she always encouraged me to stick with the program and kept me apprised of the progress being made with my debt.
I am happy to say I graduated early despite some months in which I was not able to make my payment due to family emergencies. We are able to live within our means and have credit cards, which we kept only for rare emergencies and paid off immediately.
All thanks to our debt settlement program, the quality of our life has been greatly enhanced by the fact that we are at last debt free. I would highly recommend the program to anyone who is in what appears to be a hopeless financial situation. It was a lifesaver to us.
Staying out of debt is simple in theory — do not spend more than you have. But we all know it is much harder in reality. It will take practice and a continued focus on your financial goals. Without the cloud of credit card debt looming, you can do things you were never able to do before: save for family vacations, prepare for retirement, and put money toward your children’s college educations. What begins as a long and painful process ends with great feelings of liberation and relief.
Best wishes in your journey!
Jenna Keehnen
Jenna Keehnen is the executive director of the U.S. Organizations for Bankruptcy Alternatives (USOBA). USOBA is dedicated to providing its member companies with important, industry-related information, including compliance requirements, as well as advocating on behalf of its membership for fair and appropriate industry regulation that maintains the utmost in consumer protection. USOBA members are provided a USOBA State Law Summary guide, the only one of its kind in the industry, to better ensure and promote national compliance. This guide contains the laws and regulations, state by state, and has been reviewed by regulators and legislators. For further information, visit www.usoba.org.
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