E-zine Debt Management pt.

The Advantages Of Debt Management For Erasing Credit Card

Debt
Countless consumers across the nation have been harried of late by the ravages of credit card debts, and
many Americans are desperate for any kind of relief. As they seek to take care of a seemingly unending
string of bills, more and more Americans are turning to debt management solutions to provide some help in
ridding themselves of the burden of credit card debt. Now, as you probably know, debt management can
refer to a whole host of different techniques with which borrowers and their debt manager professionals
may try to take charge of their household economics. In this article, we will briefly run down some of the
more popular methods for debt management. It is important to remember, however, that this is only the tip
of the iceberg as regards the information every borrower must know before they enter the world of debt
management. Much as it may help to read some cursory explanations of the various alternatives available,
smart debtors must investigate every single option before they begin to alleviate their own financial
difficulties.

Whatever Happened To Bankruptcy Protection?

For the entire lives of virtually all Americans, bankruptcy has existed as the final solution to unchecked
debts. However, over the past generation, more and more changes to the United States Bankruptcy Code
have seriously weakened the protections previously available to all consumers. About twenty years ago,
the first blow to bankruptcy protection was struck when the congress removed student loans (both public
and private) from the type of debts that bankruptcy could effectively deal with. Then, in 2005, pressured
both by lobbyists from the multinational credit card conglomerates and their own Internal Revenue Service,
the government drastically changed nearly everything about Chapter 7 protection as it was formerly
understood. Bankruptcy was never a glamorous choice – indeed, it has always been considered disastrous
for credit and embarrassing to personal reputation. Nevertheless, American borrowers always assumed that
bankruptcy would remain a final resort for debt management and that, sadly, is no longer the case.

One thing, however, has not changed. Bankruptcy still has irrevocably (at least, for up to a decade) ruinous
consequences as to FICO scores and overall credit ratings. If anything, the modern breed of debt analysts
who have been specifically trained to look over credit reports for findings above and beyond the Fair-Isaacs
score will treat borrowers who have declared bankruptcy even worse. These sorts of notes can have
repercussions for debt management that linger well past the bankruptcy has been cleared. In even the best
of situations, twenty four months will have to pass after the formal discharge before consumers would
qualify for new loans or new credit accounts, and, even then, those that have declared bankruptcy will face
interest rates beyond horrendous. It has always been a difficult road to pursue – taking into account the loss
of assets and credit privileges that Chapter 7 associations usually necessitate – but nowadays it is almost
unthinkable for borrowers with any other choice.

While recognizing all of the negative consequences regarding credit that follow borrowers who have filed
for bankruptcy, it is still not surprising why the notion of Chapter 7 protection yet appeals to so many
Americans. Even taking into account the not inconsiderable costs that ever more expensive bankruptcy
attorneys will charge (and even for the initial consultation!), the temptations to eliminate most unsecured
debts have an obvious attraction. As has been said, some debts are immune to bankruptcy proceedings.
Student loans would not be able to be included under Chapter 7. Most tax liens, familial support, funds
owed from criminal proceedings, and assorted other debts are also ignored. Still, to be sure, Chapter 7
bankruptcy protection, when successfully declared, can be a powerful debt elimination tool even though,
under the current guidelines, borrowers would risk the loss of most salable assets or possessions. However,
with these new strictures in place, borrowers would only qualify for the Chapter 7 program if they earned
less than half of the average income of their state of residence as determined by an arbitrarily chosen
period. Not only will bankruptcy protection be more corrosive and eliminate fewer debts than before, as
things stand many debtors might not even to be able to declare!
Spend Wisely!

Of course, for debt management to have any sort of success, the borrowers must re-learn many of their
most damaging behaviors. To be fair, there are many different reasons why people may find themselves
overwhelmed by debt. Still and all, even those borrowers who have suffered catastrophic accidents (sudden
unemployment, accidents, hospitalization or other medical emergencies, and other such unexpected
disasters) could have attempted to make sure they had proper savings just in case such misfortune would
befall them. This is not the most exciting form of debt management, to be sure, but it is of the utmost
importance. Spending foolishly is by far the most common reason that most families start to drown in
debts of their own making. Thoughtless purchases that you do not need (or, in many cases, even want)
shall quickly lead to a reflexive pattern of overspending that will only result in credit card debts beyond
your own control.

Unfortunately, once behaviors of any sort have become fixed toward conditioned habits of over spending, it
is that much harder for consumer to even recognize their misdeeds. For this reason, it is a good idea for
anyone beginning to investigate the various alternatives available to first do whatever they can to figure out
how to cut their expenses to the bone before even approaching a debt management professional. One tip
we would suggest would be to spend a month recording all household expenses. This does not mean
simply adding up utility bills or calculating the grocery costs of any given month. Instead, actually write
down all of the niggling little purchases that families tend to forget about. By this, we do mean every
single cent that is spent by members of the household. The most seemingly chintzy or capricious buys
often, once they are properly tabulated, end up proving vibrantly the underlying causation behind the larger
debts.

Do you really need to spend one dollar for a soda at the office every day? Should you spend five dollars
for a magazine at the store as opposed to a monthly subscription? Can you afford forty dollars for a family
night out at the movies each week? At the end of the process, you will be surprised how much of your
spending could be curtailed. Do you really need premium cable channels? Couldn’t you mow your own
lawn yourself instead of paying neighborhood kids? Everyone must have some sort of entertainment
budget, of course, but many households spend far too much on unnecessary foolishness. Even those
borrowers who do not have excessive problems with credit card debts should always keep a close eye on
household spending in order to maximize savings in case of emergencies.

What To Do When Your Debt Is Out Of Control

While curtailing purchases and controlling family spending habits are, as we have explained, quite
important parts of debt management, there are some borrowers whose debt obligations have increased to
the point that such stopgaps will not be of much use. Fortunately, there are now a number of alternatives to
bankruptcy that debtors can take advantage of when trying to reduce their overall burdens. As you would
imagine, the correct strategy would depend upon each debtor’s specific scenario. The first thing we would
advise is to discuss options with your credit card companies. Believe it or not, your creditors will often
work out payment schedules to make sure that they are not overly onerous. After all, the last thing they
want is to put debtors’ backs against the wall so that they would consider Chapter 7 bankruptcy. Even if
they will not significantly reduce the monthly minimum payments, they will generally waive past due fees
and lower the cards’ interest rates. Whenever your accumulated debt has grown to the point that you have
trouble making your minimum payments, it is always a good idea to talk to representatives of your various
lenders to see what could be done. For those borrowers that have only come to such dire straits because of
injuries, lack of employment, or other unforeseen events, obviously there should be even greater lenience
expected from the credit card companies. More than even bankruptcy protection, the lenders’ corporate
offices fear bad publicity for unduly punishing the forthright.
All the same, once debts have grown to a certain amount, even a drop in interest rates or an extended
payment schedule may not be able to sufficiently aid borrowers. At this point, debt management
professionals would likely urge such borrowers to consider investigating the debt settlement industry. In a
way, this method is not terribly different than when borrowers contact credit card representatives
individually to ask for special terms, but there are several aspects of this approach that deserve further
explanation. With debt settlement negotiation, the debt specialists attempt to convince the credit card
companies and whomever handles their sides of the negotiation to actively reduce their overall debt load –
sometimes by almost fifty percent! Sounds incredible, but not all borrowers will be able to enter a debt
settlement program, it should be said. Qualifications are extremely important within debt settlement
because the settlement firm not only works on the debtors’ behalf when talking with the various lenders if
they actually absorb the debts themselves.

It should now be more clear why the debt settlement alternative is considerably harder to take advantage of.
Obviously, the settlement firms will only wish to take on the consolidated loans and credit accounts of
those borrowers that they believe will repay their trust. Furthermore, not all credit cards will agree to the
demands of settlement negotiators – though more and more are recognizing the benefits of the program
every day. However, for those borrowers that successfully work with a debt settlement company, they can
see their debt balances drop by tens of thousands of dollars within weeks. The reason that settlement
specialists have so much more success in this form of debt management is not purely because of
experience, training, (there is a national certification board) and prior relationships with lenders. No, this is
why it is so important that the debt settlement company consolidate all of their client’s debts before they
ever start negotiations. Settlement reductions only work when the creditors truly believe that all debts are
being treated equally. It’s not just that the credit card companies would be less likely to listen to amateurs
attempt to carve down their obligations. They will only agree to cut debts if they know that their
competitors are doing the same.

Of course, as with any professional debt management program, there are disadvantages to be felt as well,
particularly in the pocketbook. While the costs are negligible (and, generally, do not exist for first
consultations) compared to the amount of money saved from successful debt negotiations, the settlement
specialists do not work for free, and you will find yourself with additional charges tacked onto whatever
balance they manage to barter down. Also, credit reports will take a hit after debt settlement. Credit
accounts labeled ‘satisfied’ rather than ‘paid’ look somewhat worse to debt analysts, and FICO scores will
suffer a drop – though, once again, when set next to the carnage wrought from bankruptcy debt elimination,
most borrowers wouldn’t be able to tell the difference. As it may be harder for those borrowers who have
gone through debt settlement to find credit cards just after the process has been completed, they will also
have to close all open accounts so as to reassure the creditors that they are not planning some sort of scam.
This can make it trickier for households to survive during the three to five years that debt settlement
traditionally takes, but, as will all of the debt management tactics, the alternative is incalculably worse.