Phrasing the topic like that makes it sound like a question not worthy of discussion, the goal of getting out of debt is to get out of debt! That stands as the right answer, but let's take a minute to review common wrong answers. Many consumers think the goal of dealing with a credit card debt problem involves how to pay off all of their obligations in full out of some deep rooted feeling of moral or legal obligation. You need to do what works best for you. If that ends up in paying debt in full and that makes you feel better so be it, but you owe your primary responsibility to yourself. The bank business revolves around lending money and taking risks, sometimes they win other times they lose. If you could not pay your credit card debt the bank will not feel bad for you nor will your default change their lives. Don't extend them more consideration than they would show you. You need to address your credit card debt in a way that works for your life, not what the bank wants.
Not including all credit card debt often works to a person's disadvantage. Most of the solutions you evaluate bring certain consequences, like bad credit. Rarely does incremental credit card debt increase damage. For example settling $50,000 of credit card debt does not make your credit markedly worse that a debt settlement of $20,000 nor does a bankruptcy for $80,000 end up as a bigger negative than a bankruptcy for $30,000. Once you pick a way to get out of debt and implement a plan you should include all debt applicable for reduction. Debt consolidation loans where you convert unsecured debt to secured debt mark an exception to this rule.
In the spirit of getting out of credit card debt, consideration should go to the most aggressive debt solutions that fit with your own personal circumstances. In the end you may elect a method less dramatic for various reasons, but many people toss out choices like bankruptcy because they feel offended by them. While we will allow your emotions to count as one element in the credit card debt solution selection process, consumers must stop short of granting their feelings veto power.
Financial Ability To Get Out Of Credit Card Debt
Becoming debt free rarely ends up the same as getting out of debt free. From the fees of hiring a bankruptcy lawyer to paying debt in full each and every credit card debt solution takes some money. Consumers with credit card debt problems cannot avoid spending money to solve their financial trouble, but they can avoid blowing money on the wrong solution. Many debt methods lead to another, for example a failed non-profit credit counseling plan may pave the way for a debt settlement or a collapsed debt settlement may precede chapter 13 bankruptcy. While you may take comfort in knowing if one plan fails another awaits until chapter 7 bankruptcy at the end of the line, you need to think carefully now about your choices because any money spent on a debt method not completed probably counts and money thrown away for no return, and people reading this article do not have extra money to waste.
If you did not make use of the interactive home budget calculator from the consumer spending chapter, I suggest you go there now. You can't make a budget or accurately know what you can afford if you don't start with a very precise picture of income and expenses. Once you figure out that number without influence from any of the projected requirements from a credit card debt elimination program you might prefer, you may see which debt relief methods you can afford. As you review which credit card debt options you might afford keep this in mind, many of you experienced financial trouble already, most personal bankruptcy reorganization plans end with a chapter 13 dismissed, many people crash out of their debt settlement contract. In my experience when debtor looks at an option that they feel represents a real stretch for them in terms of monthly cash allotment the majority fail to finish the program. Take the time now for a hard gut check on what you can pay each and every month for the life of the particular plan to erase your credit card debt and be 1000% sure you won't miss a payment. If you find yourself torn between two options because one may be too much money each month, strongly consider the one that requires less of a burden on cash flow.
Another aspect of cash allocation involves preservation of money on hand. Let's say you start a credit card debt reduction plan over a term of years with $3000 in the bank. Consumers often feel using the money to settle some debt right away and proceed living hand to mouth from that point rates as a responsible choice. I rarely find this results in a smart decision. As you work through a credit card debt solution requiring monthly payments most people with a history of debt problems experience some sort of trouble. Especially with a chapter 13 where missing payments may mean the need to start asking questions about life after dismissal of your bankruptcy or avoiding foreclosure, the best idea involves saving that cash to use when you might otherwise miss a payment. Review the article about accruing emergency savings and remember to consider what kind of rainy day fund you will have when selecting a credit card debt solution.
Credit Score Before And After Starting A Credit Card Debt Relief Program
How a particular credit card debt reduction method affects credit in itself or what happens to a credit score using one debt elimination technique versus another comes up as a frequent question from consumers. For some debtors, credit questions rank as their most important consideration while for others credit score concerns become almost irrelevant.
Start with reviewing recent credit scores, understanding your credit score and reading about the definition of bad credit. If you don't know for sure get your credit score now. For consumers hanging onto good to excellent credit look at the viable credit card debt solutions available as affordable realistic options, would any allow you to retain your good credit? People answering yes need to give serious thought to the ways of erasing credit card debt that leave their personal credit score alone. Sometimes this comes down to a purely mathematical decision, if you could save $40,000 with a debt settlement over paying in full is the pain of rebuilding your credit score worth $40,000? Placing an exact value on a credit score depends on your starting credit score and how much your credit impacts your daily life. Elderly people living without the need for cars or houses and therefore no auto loans or mortgages place far less value on individual credit reports. A contractor building spec houses to sell might need to keep up good credit to remain in business.
Consumers facing credit card debt help method selection with fair or poor credit should not give much weight at all to this element. In the end the much more important issue becomes not what your credit score was in the beginning of the credit card debt elimination process but much more about what you did to boost your credit score after getting out of the credit card debt. When people ask questions like "What hurts my credit more, bankruptcy or debt settlement?" I use an analogy like which car retains more value, the one dropped off a 400 foot cliff or the one pushed off a 500 foot cliff. Both count as totaled and you need a new car, exactly how much damage from the old wreck doesn't mean much going forward.
How long does it take to establish a new credit score? I generally say 2-4 years until you recover back to the level where you get past a label of fair or bad credit, but keep in mind that for most debtors that only counts a part of the answer. The more important question people really want to know would be phrased more like "When might my credit score return to a high level?" The big difference in the answers comes when you include the timing gap between now and when you start your credit rebuilding. For a chapter 7 bankruptcy you might begin establishment of new credit within six months and in three years be able to get a standard bank loan. Yes, the old bankruptcy remains on the credit report of someone who filed chapter 7 for ten years, but you can develop quite a solid credit score if you work hard at rebuilding it post bankruptcy. While a credit card debt settlement over a term of three years may not knock your credit score quite so far down and it drops off your credit report in seven years, the credit renewal process only starts when you finish the debt settlement process three years in the future. So potentially a solution that makes your credit worse compared to other credit card debt elimination methods may allow you to regain your credit faster in the long run. You need to examine for your own situation both what a debt help option does to your credit and when it allows rebuilding to start.
Remember that raising a credit score up after a credit card debt crisis does not occur automatically. While the passing of time helps, you must aggressively work to improve your credit. Please take advantage of our free credit improvement course online to guide you.
Goals for assets after elimination of credit card debt
The knee jerk reaction concerning asset retention for most consumers involves keeping everything. Use the process of finding your own best credit card debt relief solution as a time to review your assets and reassess which you should hold onto. If you elect after an intelligent thought process to not give anything up it might be the best course of action, but think about it make sure that marks the right path not just from a reflex action but from a mathematical personal finances analysis.
Particularly in bankruptcy, you can pick either chapter 7 or chapter 13, the debtor maintains the right to cancel contracts. For this discussion that means abandoning a car lease, giving up on an auto loan or giving your house back to the bank. You can walk away from your home mortgage or break contracts without bankruptcy too, but they each would involve their own process. Getting out of your mortgage debt, for example, outside of bankruptcy would require an attempt at a short sale followed by a deed in lieu of foreclosure and than a mortgage deficiency negotiation. With bankruptcy you wrap up abandoning any asset or contract as a part of the court proceedings.
Look at your budget, particularly what your cash flow will look like after you execute your credit card debt reduction plan. Will you be better off with a smaller payment for a car? You can find another auto loan even with bad credit. Maybe your current mortgage payment overwhelms you to the point the only way to make ends meet requires moving to a smaller home of apartment. People dealing with credit card debt problems need to face these issues head on, even when it results in major life changes like moving or giving up a vehicle.
Psychological Issues Surrounding Credit Card Debt And Avoiding Preconceptions
People start looking at credit card debt options by eliminating certain choices they find unpalatable or offensive. Few people reading this article get that luxury. As nasty a preconceived notion as you may carry about one or more options you must evaluate each from a mathematical and unemotional point of view. Include how you feel in the final formula too, but leave the door open to all viable credit card debt solutions in the beginning.
During or after your journey through the debt elimination process you may get down on yourself or feel you failed to let your finances get to the point you required such dramatic help. Try not to let that get you down; even Donald Trump made use of the bankruptcy courts. What matters most in the end includes what you've learned from the experience and how you live your life going forward.
Continuing life after the credit card debt resolution
They say those who fail to study history are doomed to repeat it and in the world of credit card debt it makes for a good motto. People who ended up with in financial trouble once stand more likely to wind up back there again. You need to keep a close eye on your consumer spending and credit card use to make sure you never again accumulate debt you cannot afford to repay. For some this may mean cutting up credit cards while other simply need to pay attention. Figure out what works for you and don't let your guard down.
Credit Card Debt Advice Free
Anyone who read all the parts of this series on credit card debt and the suggested links should be ready to make a selection on the solution best for their situation. At a minimum people should be ready to listen to what others have to say as an informed consumer. For those who want some more advice or a second opinion try the no cost no obligation software at the Debt Advice Free website.