Debt is a fact of life. Well-managed debt makes life easier. Poorly managed debt can create serious and lasting problems. Because of the potentially high Annual Percentage Rates (APRs) that credit cards can carry, credit-card debt is potentially much harder to manage than, for instance, mortgage debt.
My Debt Load Has Become Unmanageable – What Should I Do?
Effective debt management basically boils down to two key strategies:
- Debt consolidation, and
- Negotiated debt work-out
Debt Consolidation – The Concept
Debt consolidation involves taking out a loan or establishing a credit line and using funds from either source to (hopefully) pay off all outstanding debts. This is an attractive strategy for many consumers because it reduces the number of stressful telephone calls and letters they receive. It also replaces debt at several APR rates with a single rate.
Debt Consolidation – The Reality
The debt-consolidation industry is littered with predators and scam artists who make money – one way or the other – by convincing consumers that one payment is better than 8 or 10 payments. This debt “solution” frequently carries an APR roughly similar to that of a standard credit card, and it might involve unexpected fees as well. Hidden or misrepresented fees are another potential problem with respect to this debt-management strategy. Tread carefully here, and insist that all rates and fees are disclosed in writing before proceeding down this path.
Debt Work-out – The Concept
Credit card and mortgage companies basically want existing clients to retire their existing debts in a responsible manner. Debt work-out strategies essentially call for those who owe money to contact the firms to which they owe it and offer to work diligently at paying down the balance.
Debt Work-out – The Reality
Credit-card and mortgage companies are sometimes willing to negotiate payment schedules and possibly lower rates for consumers who show good-faith efforts to retire their debts. Not all companies do this, however. Credit counselors make a living handling these negotiations. Generally speaking, they simply offer what a debt-strapped consumer would offer: an effort to retire debt in return for concessions on APRs, due dates, or balances. Tread carefully here also. Make certain you understand the fee structure and who is paying the fees. Get everything in writing.
Is a Credit Card a Good Debt-Consolidation Tool?
The goal of debt consolidation for most consumers is to replace, say, 10 payments and 10 APRs with one payment and one APR. Using a credit card as a debt-management tool is usually not a good idea for the following reasons:
1. Credit-card APRs are commonly higher than APRs for other types of debt,
2. Credit-reporting agencies document activity of this nature, and (depending upon specifically what you do) it might adversely affect your credit score
Diligence and Communication are The Best Debt-Management Tools
Good-faith negotiation is generally the best way to deal with difficult debt situations. Take actions that do not increase your debt load or force you to pay fees or exorbitant APRs. Be cautious about offers of free assistance.
:: 
:: 
:: 
:: 
:: 
:: 
:: 
:: 
:: 
:: 
:: 
