How do Credit Card companies make their money?
Credit cards are designed to give a small loan and make a profit for the creditors. The creditors borrow their money from the Federal Reserve for 0% up to 0.5% interest. They will then sell that money to the public by charging 20%-30% interest, which in turn is a huge profit or legal robbery some would say.
They make it worthwhile by offering 0% APR and rewards programs that really entice people to sign up. Then after 6 months or so they jump the interest rates through the roof.
Usually the amount to be paid back to the lender is double or even triple the amount originally borrowed. Now the interest rates are getting out of control because the credit card companies are losing money.
This is causing people to look for some relief from their debt, either by seeking bankruptcy or debt settlement options.
Should I file Bankruptcy?
Bankruptcy has two major chapters; 7 & 13.
A chapter 7 bankruptcy which basically includes all your unsecured debt minus your home and you do not have to re-pay it.
A chapter 13 sets up a re-payment plan in which you are responsible for a percentage of the debt still owed which is usually around 70%.
Chapter 7 is obviously a more glamorous option because even though you are going to destroy your credit in the 10 years to follow, you will be removing all of your unsecured debt.
The only problem is that almost nobody is getting approved for it because it would bankrupt the credit card companies. The alternative is chapter 13 which destroys your credit also and you are still responsible for 70% of your unsecured debt.
How does Debt Settlement work?
Debt settlement is another alternative which removes 50-80% of your total unsecured debt and usually takes about 2 years to do so. Once it is cleared you are back at a middle ground with your credit rating so if you plan it out properly, you will have a good credit rating within a couple months after all your debt is settled.
Once you start working with a debt settlement company, they will open a trust account for you that you will pay a monthly amount towards and it's usually about half of what your current minimum payment is.
As soon as you have enough money in the trust account to start settling your debts, the debt settlement company will start negotiating with your creditors usually starting with the smaller amounts first. Once they agree upon a certain settled amount (usually 50-80% lower) they will send the payment for that amount to close the account for good.
Can I do this on my own?
Yes you can absolutely do this on your own, the only problem with this is that if you don't have the full amount to settle with them up front, they will not accept any offers.
Secondly if you decide to start saving for a settlement amount and then paying it off on your own, you will not be protected against legal threats the creditor can place against you in the meantime (judgments, wage garnishments, lawsuits, etc.).
Pros:
* your debt will be eliminated for good
* your total debt owed will be half or better of the original owed amount
* you will be protected against legal threats if you go with a law firm
* it only takes about a year to 3 years to be out of debt
Cons:
* the creditors will harass you for a payment that's due
* the creditors will post missed payments on your credit report until it is settled
Conclusion:
The bottom line is that credit card debt is no fun and with the creditors hiking interest rates, they are creating an unfair advantage for themselves.
The only way to get out of debt is to pay it off, but there are programs to help you pay off a lower amount of it without a decade of damage to your credit.
Trusted source: www.get-out-of-debt-help.com [http://www.get-out-of-debt-help.com]
Credit cards are designed to give a small loan and make a profit for the creditors. The creditors borrow their money from the Federal Reserve for 0% up to 0.5% interest. They will then sell that money to the public by charging 20%-30% interest, which in turn is a huge profit or legal robbery some would say.
They make it worthwhile by offering 0% APR and rewards programs that really entice people to sign up. Then after 6 months or so they jump the interest rates through the roof.
Usually the amount to be paid back to the lender is double or even triple the amount originally borrowed. Now the interest rates are getting out of control because the credit card companies are losing money.
This is causing people to look for some relief from their debt, either by seeking bankruptcy or debt settlement options.
Should I file Bankruptcy?
Bankruptcy has two major chapters; 7 & 13.
A chapter 7 bankruptcy which basically includes all your unsecured debt minus your home and you do not have to re-pay it.
A chapter 13 sets up a re-payment plan in which you are responsible for a percentage of the debt still owed which is usually around 70%.
Chapter 7 is obviously a more glamorous option because even though you are going to destroy your credit in the 10 years to follow, you will be removing all of your unsecured debt.
The only problem is that almost nobody is getting approved for it because it would bankrupt the credit card companies. The alternative is chapter 13 which destroys your credit also and you are still responsible for 70% of your unsecured debt.
How does Debt Settlement work?
Debt settlement is another alternative which removes 50-80% of your total unsecured debt and usually takes about 2 years to do so. Once it is cleared you are back at a middle ground with your credit rating so if you plan it out properly, you will have a good credit rating within a couple months after all your debt is settled.
Once you start working with a debt settlement company, they will open a trust account for you that you will pay a monthly amount towards and it's usually about half of what your current minimum payment is.
As soon as you have enough money in the trust account to start settling your debts, the debt settlement company will start negotiating with your creditors usually starting with the smaller amounts first. Once they agree upon a certain settled amount (usually 50-80% lower) they will send the payment for that amount to close the account for good.
Can I do this on my own?
Yes you can absolutely do this on your own, the only problem with this is that if you don't have the full amount to settle with them up front, they will not accept any offers.
Secondly if you decide to start saving for a settlement amount and then paying it off on your own, you will not be protected against legal threats the creditor can place against you in the meantime (judgments, wage garnishments, lawsuits, etc.).
Pros:
* your debt will be eliminated for good
* your total debt owed will be half or better of the original owed amount
* you will be protected against legal threats if you go with a law firm
* it only takes about a year to 3 years to be out of debt
Cons:
* the creditors will harass you for a payment that's due
* the creditors will post missed payments on your credit report until it is settled
Conclusion:
The bottom line is that credit card debt is no fun and with the creditors hiking interest rates, they are creating an unfair advantage for themselves.
The only way to get out of debt is to pay it off, but there are programs to help you pay off a lower amount of it without a decade of damage to your credit.
Trusted source: www.get-out-of-debt-help.com [http://www.get-out-of-debt-help.com]
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