Below, we summarize some of the options that may be available to you
and outline some of the pros and cons for you to consider.
- You are making payments and gradually reducing your debt.
- Does not have a negative impact on your credit.
- High monthly payment.
- High and variable interest rates.
- High debt totals can hurt your credit over time.
- Lengthy time-frame to pay off.
- Could pay 2 to 3 times the amount originally charged.
Making the minimum payments on your credit cards is a strategy that merely prolongs your problem. Given an average minimum payment representing just 3% of the total outstanding balance and an interest rate in the high teens, you can forecast paying off your entire balance in about 40 years. This scenario assumes that you will be making no additional purchases on your credit cards and you are making the monthly minimum payments on time each month.
Minimum payments should be used only as a temporary strategy in advance of receiving a windfall cash payment that can be used to pay off your credit card debt. Otherwise you can expect total payments to the credit card companies to exceed 3 times your existing balance. As an example, if you have credit card balances of $40,000, by the time you pay it off in 40 years, you will have paid the credit card companies over $130,000 — $90,000 of which would be interest expense.
If you have experienced a unexpected reduction in income and are only able to make the minimum payments, then this strategy may be an effective one in the short term, assuming you make all payments on time and expect to have increased future income or a significant cash windfall which you will use to pay down or pay off the outstanding balances. If the outstanding balance on any single account is greater than 30% of your total credit line available on that account, this strategy may actually be dragging down your credit score as credit rating agencies penalize you for carrying a high balance relative to your total available credit line on any given account.
- Skilled strategists and negotiators and working on your behalf.
- Provide immediate payment relief.
- Be free of enrolled debt in under 4 years.
- You do not have to enroll all your credit cards.
- No fees collected on your card until settlement is reached.
- Prevents the use of enrolled credit cards.
- May temporarily increase the amount owed due to the accrual of fees and interest
- Has a potential to adversely affect your credit worthiness.
Debt Resolution, or Debt Negotiation as it is sometime referred to, is the process of negotiating with a creditor or debt collector to pay less than the full amount owed. By paying less than the full balance you on an account to satisfy the debt, you are able to become debt free in a shorter period of time and get on with your life.
This type of debt relief program is both recognized and regulated by the federal government. Debt relief providers who offer this type of service are prohibited by law from collecting fees in advance of actually resolving a debt to the benefit of the consumer. For this reason, this type of debt relief program has become more popular in recent years. While this program may provide significant payment relief, allowing you to become debt free sooner, your credit score may be negatively impacted by entering into an agreement to repay less than the full balance owed.
However, if your credit score has already suffered due to months of late payments, maxed out credit card balances or closed and charged-off accounts, the damage to your credit score may already be done. If so, this option may help you get back on your feet and on your way to improving your credit score. Finally, under the new credit scoring algorithms recently implemented by the FICO credit scoring company, an account which has been paid off through a settlement no longer factors into your credit score, so long as the agreement has been satisfied and the account has been reported to the credit bureaus as “Settled in Full”. Therefore, the sooner you can settle and pay off a negotiated account, the sooner your credit score may improve.
With your credit card debts successfully negotiated and paid off; a little time, and some regular payment activity on a few credit lines, will go a long way to improving your credit score.
- One monthly payment.
- Pre-negotiated reduced interest rates.
- Reduced payment terms.
- Minimal or no payment relief.
- Must stop using all credit cards.
- No access to credit cards in the event of an emergency.
- Has a negative impact on your credit.
- Not all creditors participate.
- Penalties for any default.
Credit Counseling is a program that was designed in conjunction with the credit card companies. Credit Counseling provides consumers burdened with high interest credit card debt financial counseling, education tools, budgeting help and a reduction of the interest rate for the credit cards accepted in the program. In a Credit Counseling program, the outstanding balances on your credit card accounts are not reduced, but because the interest rate is lowered, a larger percentage of your monthly payment is being applied to the outstanding balance. Typically, a payment plan is established whereby you pay back 100% of the balance owed over a five year period.
Credit Counseling companies are paid by the credit card companies, which creates a potential conflict of interest. If you have multiple credit cards, high balances and reduced or limited income, you may not be able to qualify for a Credit Counseling program or make the required payments in a timely manner to successfully complete the program. You will also not be allowed to continue to use your credit cards during the course of the program as the credit card companies will close the accounts once you enroll. However, if you want to pay back 100% of the account balances over a shorter period time, and you have the financial means to do so, while remaining current with all of your other debt obligations, then this may be an option you want to consider.
- Lower interest rates than credit cards.
- Ability to consolidate credit card payments into one monthly payment.
- Likely inability to qualify.
- High up front closing costs.
- Lengthy and cumbersome application process.
A Debt Consolidation Loan can be an effective way to pay off your high interest credit accounts and consolidate these outstanding balances into a loan that carries a much lower interest rate over a longer payback time-frame, resulting in a much lower monthly payment. Debt Consolidation Loans are typically a loan that is backed by a secured or collateralized asset.
If you have excellent credit, documentable income and/or a good amount of equity in your home or other asset the lender will accept as collateral, then utilizing this option may be something to consider. However, the banks and mortgage providers have significantly increased the credit and income documentation requirements for these types of loans, and the recent downturn in the housing market has caused many homeowners to lose significant equity they once had in their properties. These factors combined are making it more difficult for consumers to take advantage of this option in today’s market.
If you are fortunate enough to qualify for a debt consolidation loan, you should be aware that you will be trading unsecured credit card debt for debt that is secured by your home or other personal property. In a still uncertain economy, you should seriously consider whether you want to put these types of assets at risk in the event that you should default on this type of loan.
- Equity secured loans carry lower interest rates.
- Ability to consolidate into one monthly payment.
- Flexibility to utilize credit line as needed over time.
- Interest may be tax deductible.
- Must have significant equity in your home to qualify.
- Lengthy and cumbersome application process.
- Puts your home at risk.
- High closing costs and possible pre-payment penalties.
Home Equity Loans
Home Equity Loans and Home Equity Lines of Credit, sometimes called a HELOC, are a type of loan many individuals use to consolidate their high interest credit card debt. This type of loan may make sense for individuals that still have a relatively high credit score and documentable income to support the amount of the loan they are applying for. Typically, an individual or married couple can borrow up to 80% of the appraised value of their home in this type of refinancing option. In some cases, Veterans of the US Armed Services may be able to refinance their mortgages for up to 100% of the appraised value of their home.
In a Home Equity Loan, or cash out refinancing of your current mortgage, a borrower may refinance their current mortgage and take out the difference of up to 80% of the appraised value of the home, less the current outstanding mortgage balance. In this type of loan, the money may used for virtually any expense. In a Home Equity Line of Credit, the borrower is given a line of credit, secured by their home. The amount of the credit line can be up to 80% of the appraised value of the home, less the current amount owed in most states. The borrower can draw against this line of credit and repay the loan by making monthly payments in accordance with the loan terms.
Keep in mind that you are placing your home at risk of foreclosure if you are not able to repay the loan amount in accordance with the terms of the loan agreement. You should check the local laws in your state carefully before considering this option to refinance unsecured credit card debt. In some states, the foreclosure process, once started, can progress rapidly and only lasts a few months. In other states, the process can take much longer; providing some time to become current on your payments should you fall behind.
- Attorneys and skilled negotiators working on your behalf.
- Provides immediate payment relief.
- Frees you of your unsecured enrolled debt in 2 to 4 years.
- No need to enroll all your cards.
- We only refer to law firms that have an A rating with the BBB and who adhere to minimum performance standards.
- Does Not Reduce or Eliminate Any Debts Owed.
- Does Not Remove Accurately Reported Information.
- Does Not Remove Negative Data That is Verifiable.
Bad credit can have a devastating effect on your life and your family. Your credit score determines your ability to get a loan and ultimately, what interest rate you are charged for that loan. But your credit score determines much more than your ability to get a loan, buy a car or get a mortgage. Your credit score is also used to determine your rates for many insurance products, and your credit score may even impact your ability to get a job since many employers use an applicant’s credit score in the job application review process. If your credit score is having a negative impact on your ability to obtain credit, get a job or find affordable insurance, we may be able to help
Did You Know ?
- 79 percent of credit reports contain errors of some sort.
- 25 percent of credit reports contain errors serious enough to result in the denial of credit.
- 54 percent of credit reports contain incorrect personal information, including wrong names that could cause you to be blamed for someone else’s bad credit.
- 30 percent of credit reports list accounts that the consumer has closed as currently open.
- 29 percent of consumers have wide variances in their credit scores from bureau to bureau.
Valued Credit, an affiliated partner of Timberline Financial, is a leading provider of Credit Repair services. We work with people just like you every day that need help understanding their credit profile and assistance having inaccurate and or unverifiable information removed from the credit report. Our caring and knowledgeable team understands what it’s like to go through difficult financial periods, and the lasting negative effects of poor credit that can impact your life in so many ways. Rest assured, we will work on your behalf in the most aggressive manner allowed by law to ensure your credit profile is a true and accurate representation of your verifiable credit history.
- May restructure or eliminate many of your debts.
- Provides payment relief.
- Court appointment of a trustee to oversee assets hampers independence.
- Impacts your ability to buy or rent a home.
- Long term ramification on your credit score (7-10 years).
- May increase the cost to obtain insurance.
- May hinder your ability to apply for future loans.
- Generally, you must be able to qualify to receive this kind of relief.
- May require the liquidation of your assets.
We list bankruptcy last because it should be considered as a last resort to your financial difficulties. If you are in such a dire financial situation that you are unable to make any payments to your creditors, you may wish to consult a bankruptcy attorney to review your options. However, new laws have been passed that make it harder to qualify for bankruptcy. Also, you should consider the fact that while negative payment information that is reported to a credit reporting agency by your credit card companies and other creditors stays on your credit report for 7 years, the reporting of a Bankruptcy can last up to 10 years in many cases, making it difficult if not impossible to get credit or finance a home or vehicle during this period of time.
Furthermore, there are several types of debts that you CANNOT discharge through Bankruptcy:
- Alimony payments
- Child support payments
- Debts that you have incurred after Bankruptcy is filed
- Some debts that you incurred in the preceding six months of filing Bankruptcy
- Any loans that were obtained in a fraudulent manner
- Debts resulting in personal injury if you were driving under the influence of drugs or alcohol
- Debts from intentional and malicious injuries to another person or property
- Certain types of student loans
- Certain types of taxes
Some types of bankruptcies require a liquidation of your assets in order to discharge your debts. Other types allow for a restructuring of your debts subject to a court approved debt repayment plan. Either way, in order to qualify for bankruptcy, you will be required to demonstrate to the bankruptcy court through a “means test” that you cannot pay your current debts, and in certain types of bankruptcies, where you are trying to reorganize, that you also have some ability to repay your debts. You will also likely be required to undergo credit counseling and budgeting education courses as a requirement of discharging your debts through bankruptcy. The emotional and social stigma surrounding bankruptcy is challenging for years after your debts are discharged, and therefore, bankruptcy should be considered only after all other options have been exhausted.
THE THREE MOST COMMON TYPES OF BANKRUPTCIES
We list bankruptcy last because it should be considered as a last resort to your financial difficulties. If you are in such a dire financial situation that you cannot make your current minimum payments, you may want to consider bankruptcy as an option and meet with a bankruptcy attorney to see if this is a suitable option for you. Recently, new bankruptcy laws have been passed that make it harder to qualify for bankruptcy. Also, you should consider the fact that while negative payment information that is reported to a credit reporting agency by your credit card companies and other creditors stays on your credit report for 7 years, the reporting of a Bankruptcy can last up to 10 years in many cases, making it difficult if not impossible to get credit or finance a home or vehicle during this period of time.
There are six forms of Bankruptcy that are available to married couples, individuals and businesses in the US. For the purpose of this discussion, we will focus on the three most common forms utilized by married couples, individuals and small businesses; Chapter 7, Chapter 13 and Chapter 11.
Timberline Financial works with consumers burdened by credit card debt to develop a plan to reduce their debt and pay their creditors in the shortest time possible.
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Fax us @ (855) 700-2974
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