As of 2007, the average American has approximately $9,000 in credit card debt, and with interest rates exceeding the 30% threshold, it’s no wonder so many people are seeking relief through bankruptcy each year. Not surprisingly, statistics support the notion that there is a direct correlation between rises in consumer debt and bankruptcy filings. In 2005 almost two million consumers filed bankruptcy, up from less than 300 thousand filings in 1980. As of 2007 consumer debt has risen to $2.46 trillion, or five times what it was in 1980. Clearly, the number of bankruptcy filings and consumer debt statistics are almost directly proportional.
Debt Questions & Answers
My debt is in collections. Should I be concerned?
Yes. Although it is not necessarily the end of the world, it should be a problem you try to confront sooner rather than later. There are several reasons for this:
- Late fees and interest charges can continue to accrue - Assuming your debt is for credit cards or personal loans, the balance can increase dramatically while you wait to pay it off.
- The likelihood that the creditor will become impatient and try to pursue legal action against you is higher the longer you wait - Eventually your creditors will lose hope that you are trying to satisfy the debts. When this happens they may decide their best chance of collecting anything is by sending the account to an attorney, who will file a lawsuit against you. Although this is a relatively rare scenario (it is threatened more often than it is actually done), why risk it?
- Collections and charge off accounts can impair one's credit - Satisfying the debt is the first step towards rebuilding your credit, and the faster this is done, the quicker you can rebound from a credit rating standpoint.
What debts can be discharged in bankruptcy?
For the most part, your unsecured bills like credit card debt, medical bills, balances from repossessions, and the vast majority of accounts that were in collections can all be eliminated in bankruptcy. Thanks to the bankruptcy changes, private and federal student loans are rarely eligible for discharge through bankruptcy, unless of course you pay it off (which makes very little sense-after all, if you could pay it off, why file).
How Am I Buried In Debt
More consumers than you would expect find themselves in debt due to unforeseen circumstances and less because of the overspending myth advanced by the credit card companies and the media. The following is a list of some of the most common ways people end in debt other than overspending:
- Medical Problems - A frequently cited Harvard study conducted in 2005 found that 50% of all bankruptcy filings were triggered by some sort of medical issue. Whether it was unemployment resulting from a medical condition or the medical bills associated with an uninsured person's illness, medical problems are far and away the leading cause of debt issues .
- Failed Entrepreneurial Venture - Unsuccessful businesses account for a large proportion of personal debt problems. Whether it has to do with a lack of income generated or the fact that a lot of cash-hungry entrepreneurs finance their start-up with credit cards, failed businesses are a leading cause of bankruptcy. Is it a serious issue? Not according to famed New York Times journalist Thomas Friedman. According to Friedman, bankruptcy and business failures are a sign of a well-functioning economic system, where people aren’t afraid to take the risks necessary before starting the next Google or Microsoft.
- Divorce - On soap operas couples fight over how their wealth will be divided during their divorce. In real life the fight is much more likely to be over who will be responsible for paying off the credit card debt. If one of the spouse’s is left with the majority of the bills, you can bet they'll be in over their heads.
Steps For Digging Yourself Out Of Debt
Fortunately, there are many options for getting yourself out of debt, although it is unlikely to be as easy as getting in debt. The first step should be to evaluate your financial situation, and whether your debt problem can be remedied with simple budgeting or whether you will need the services of a third-party debt management firm. If cutting back on your expenses or getting more income to supplement your debt payments, then debt negotiation or debt counseling are great options to consider.
Debt negotiation is also referred to as debt settlement and debt reduction. In this type of service a consumer can in some cases save as much as 40-60% off their credit card balances. It is an appropriate option for people who into the financial hardship category as a cause of their circumstances.
Debt counseling is an appropriate option for people who can afford their payments, but are bothered by high interest rates or having too many payments. In this type of debt consolidation program a consumer’s debt is restructured and the terms are adjusted for lower interest rates, typically in the 8-10% range.
If you would like to learn more about your debt management options, PayingPaul.Com can help. Just fill out a form and receive a free, no obligation consultation from a debt relief provider.