The Need for Debt Management
Consumer debt management for individuals and families has become more difficult yet needed more than ever by people dealing with the fallout from today’s economic crisis. Making matters worse, before the recession, consumer debt exploded in the last few years as consumers maxed out their credit and charge cards by going on a credit buying binge for cars, boats, recreational vehicles, vacations, dining out, clothing, home appliances, etc. Others are victims of unfortunate circumstances such as job loss, medical bills, or the loss of the family bread winner. Before a debt problem spins out of control there are self-installed strategies that can help. However, it will be impossible for some debt victims to pay their debt off without receiving help from a debt management professional.
When Consumer Debt Gets Unmanageable
Even though consumer debt has dramatically increased recently surprisingly there are still many people that don’t realize how bad their problem can become. If left to spin out of control credit card, charge card and other consumer debt can lead to bankruptcy! This can happen when credit purchases continue each month without the account balance getting paid off. Interest cost starts to pile on and the balance gets higher and higher with each new monthly statement. When adding interest costs to purchases that were financed on credit cards the total cost of these purchases can balloon to over twice the purchase price if not paid off within a few months of the credit transaction. If this pattern occurs with more than one credit or charge card soon paying off the debt starts to look very difficult if not impossible. If a payment gets missed or is paid late then penalty fees and penalty interest rates compound the problem by increasing balances even more. This kind for credit behavior can lead to a debt problem lasting for years. Financial stress can get very upsetting even unbearable as bills go unpaid and debt collection calls fill up the telephone message box. It can cause more than just financial pain – it can result in divorce or even severe stress related health problems.
The first step to preventing debt problems is to not take credit purchases lightly rather to realize just how important consumer debt management is to financial health. There are behaviors that can change this downward debt spiral immediately. The first and most critical step to take is to STOP all credit purchases. Then throw away all offers for new credit cards except to take advantage of 0% balance transfer offers.
One strategy to get out of a credit card debt problem after credit purchases have been stopped is to transfer all credit card account balances to a 6 or 12 month 0% introductory interest rate credit card then pay the balance off within the introductory 0% interest rate period. Simply divide the transferred balance by the number of introductory months then pay this amount each month. The balance must be paid off by the end of the introductory period or finance charges may be applied retroactively.
Another effective strategy to pay debt is to work overtime or find a second job then make use of the extra cash to double or even triple monthly debt payments until all balances are paid off. If home equity exits a second mortgage loan is another way to pay off consumer debt.
Consumer Debt Reduction Done Professionally
Even with doing all or some of the self-help strategies described above some debtors find they can’t do it on their own and have to seek the help of consumer debt management programs. Debt management firms are in the business of developing consumer debt solutions. Consumer debt management when handled by a professional consists of consolidating a client’s unsecured debt into one low monthly payment. Often the firm can persuade creditors to substantially reduce interest rates and waive late penalty fees. The client’s debts are scheduled to be paid off over a three to five year period. There are programs available mostly through law firms that result in a write-off of a substantial portion of a client’s debt. Debt counseling is also available so that bad financial habits are broken and a realistic budget is adhered to.
Whether done professionally or by self help strategies consumer debt management is absolutely necessary if consumer items are going to be financed with credit cards and charge cards. Account balances must eventually be paid off and getting a handle on debt is much easier if done sooner rather than later.