Option 1: Debt Settlement
Debt settlement, also known as debt negotiation, is a debt reduction service that aims at reducing the principal amount owed on credit cards. Through negotiating with your creditors , you can reduce debt levels by 40 to 60 percent, dramatically lower your monthly payments, and pay off your debts in as little as 12 to 30 months. It is the fastest and cheapest way to become debt free without filing personal bankruptcy, but settlement is typically only a suitable debt option for consumers who are genuinely overextended and unable to afford their minimum payments.
Option 2: Credit Counseling
Credit counseling aims at reducing your interest rates on credit cards. By lowering the interest charges to as little as 0-12%, a consumer can pay their credit card debt off in four to five years and lower their payments. The payments are generally higher than those in debt settlement, so consumers experiencing a financial hardship may be better suited for a debt negotiation program.
Option 3: Filing Personal Bankruptcy</p>
Filing bankruptcy isn’t exactly paying off your debt. That is, the debts are never fully satisfied, you are simply relieved of your legal obligation to them. Due to the catastrophic credit effects, personal bankruptcy is generally considered a last resort for most debtors. However, for consumers with no income or savings to pay off their debt, it may be the only option.
Option 4: Paying More Than The Minimum
Minimum payments on credit cards are generally 2-4% of the outstanding balance. For example, if you owe $10,000 in credit card debt, you can expect to pay between $200-$400 every month in minimums.
Debt Questions
- Please help me---Should I pay any old or bad debts on my credit report?
- What debt should I pay down first?
- In credit counseling and debt settlement, are there penalties for paying back your bills early?
- Should I use an equity loan to consolidate my credit card debt?
- Are there such things as grants to help people pay their debt?
- Do you recommend using my 401(k) to pay off an unsecured loan I have?
- Why is PayingPaul.Com so staunchly against taking out consolidation loans to get rid of credit card debt? Doesn’t it make sense to do this if the interest rate will be so much lower?
- Where should I go to talk to someone?
This depends on how old or past due the debt is, what state you live in, and how much it is affecting your credit negatively. If it has been more than 7 years since you last made a payment on the bad debt, then it shouldn’t even be reported on your credit to begin with, and therefore, you should either dispute it with the credit reporting agencies or settle it with the understanding that they will erase it from your credit altogether.
In order to save the most money and pay off your debt as quickly as possible, you should always attack the debt with the highest interest first. Some financial debt pundits, like Dave Ramsey for example, suggest that the best debt to attack first is the one with the smallest balance, regardless of the interest. The logic for this is that you need to build of momentum and confidence that you can in fact eliminate your debt . Although this is an intriguing concept, being self-disciplined and paying off the debt with the highest interest rate makes the most sense.
Absolutely not. If you encounter a company who has pre-payment penalties, avoid them at all costs. To get matched with a reputable firm, please feel free to fill out a form.
As reiterated throughout our website, “Robbing Peter to Pay Paul” is not a recommended course of action. There are several downsides, chief among them is you are putting your home at risk by using an equity loan.
Unfortunately, there are no government grants or free money to pay off credit card debt (at least none that PayingPaul.Com is aware of).
This depends on a number of factors and what you specifically are suggesting. Typically borrowing against your 401(k) is a much more advisable tactic than taking the money out because if you are able to pay it back within 60 days, there are no early withdrawal penalties. Keep in mind, however, that there are 10 percent early withdrawal penalties assessed on your taxes if you do fail to pay it back in time.
There are several reasons for our stance on debt consolidation loans. First and foremost, any consolidation loan worth getting will almost certainly require you to use your home as collateral. After all, the vast majority of unsecured personal loans will have an interest rate on par with your credit cards. This being the case, why use such a risky option when so many other alternatives are available for debt help. Additionally, numerous studies show that because “Robbing Peter To Pay Paul” requires no behavior modification, many people who do this find themselves in more credit card debt in just a few years after taking out the loan. Debt programs, on the other hand, require consumers to close all of their accounts and start relying on cash instead of credit. The advantage of this in the long-term cannot be understated.
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