If you, like so many others, are finding that the pressure caused by increasing credit card debt is pushing you towards considering filing for bankruptcy it is probably time for you to start thinking about the damage such a move would cause you.
Instead, start looking at viable alternatives that won't completely decimate your credit score for the next seven years; as would be the case should you venture down the route of bankruptcy.
Believe it or not, most of your creditors would rather negotiate better terms with you than face the possibility of receiving at most, very little and at worse nothing at all, should you opt for bankruptcy.
It is always wise to approach your creditors first, explaining your situation and that you may have to file for bankruptcy; Most, if not all of them, will bend over backwards to help you avoid doing so.
If your credit card debt is at a level that even negotiated reductions with your credit card providers does not make a big enough impact then it is worth considering a Credit Card Debt Consolidation Loan.
Credit card debt consolidation works by combining all of your outstanding balances into a single loan; this loan will have a much lower rate of interest than the cards it is used to pay off and therefore will have a much lower monthly repayment.
The two types of loan available are secured and unsecured, the unsecured loan would normally be a personal or signature loan and the secured would normally be something like a home equity loan.
Both have their advantages and their disadvantages but both will provide you with a lower bill than you would experience with the card debt they would be replacing.
An unsecured loan has the benefit of being far more flexible than a secured loan in that you will have a choice over the term of the loan, usually in increments of 5 years upwards. Also should you miss payments on your loan you are not at risk of losing any collateral; such as your home or car, as is the case when defaulting on a secured loan.
The downside of an unsecured loan is that the rate of interest is higher than a secured loan, and lenders will provide a loan based upon your credit score and as your score may have took a bit of a hammering finding a lender willing to approve an unsecured loan may be difficult.
A secured credit card debt consolidation loan is much easier to gain approval for. Lenders are much more willing to lend to people with bad credit if the risk of lending is offset.
These loans tend to home equity loans and they are secured on your property but they do have the lowest interest rate of any loan including an unsecured loan. Bad credit home equity loans are the best option for many as they will reduce the amount you pay each month drastically.
However, the flip-side of this is that if you don't make your loan repayments you could lose your home plus, the flexibility enjoyed with an unsecured loan is not an option so you could end up paying for your debt over a longer period of time.
These are the suggested steps that you should follow to begin to get out of debt.
- Contact all three credit bureaus; Experian, TransUnion and Equifax and request your free credit report from each. (Every US citizen is entitled to this once in every twelve months)
- Contact all creditors, not just your credit card providers, to re-negotiate better terms fully explaining your situation. Be persistent, but not to the point where you become annoying and you will definitely improve your situation.
- Find out how to contest anything you disagree with on your credit reports in order to improve your credit score as much as possible. This is important for future credit applications as the better your score the better deals you will be able to find.
- Search for credit card debt consolidation loans, secured or unsecured as is your personal preference or as your situation dictates. Never opt for the first loan that guarantees you approval, shop around and get the best deal possible.
- If you have done a good job negotiating with your creditors you may find that you are able to settle for a smaller amount than you could have initially. You will therefore reduce the amount you will need to borrow to consolidate your debt and lower your monthly repayment.
- Take some debt counseling! The previously mentioned measures will improve your situation by lowering the amount you have to pay each month and by getting your debt into a manageable format but they will not fix the spending habits that got you into debt in the first place.
Finally, the only way to get out of debt is to pay it off and not to run away from it. Everyone has a moral obligation to repay that which they have borrowed.
However, it is possible to greatly reduce the level of interest applied to your debt, sometimes to zero by using certain methods and techniques not outlined here. These methods of debt elimination can clear your debt very quickly, in some cases in as little as three years.