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In June, the Commerce Department reported that personal income rose by the smallest percentage in just over year, increasing by 0.1 percent. During roughly the same time period, consumer prices rose 4.1 percent, which represents the largest annual gain since 1991.

It’s no surprise that the Federal Reserve’s recent Statistical Release indicated that U.S. consumer credit rose at an annualized rate of 6.8 percent in June.

As gas prices remain historically high, consumer prices continue to climb, and incomes stay relatively flat, people are depending more on credit cards and other unsecured loans to meet their cash-flow needs.

If you’re like many Americans who have come to rely on credit to make ends meet, it is imperative that you explore your options when it comes to reducing the cost of that debt or eliminating the debt entirely.

Debt Settlement

Debt Settlement is the process in which you negotiate with your creditors to settle for an amount less than what you owe. Your creditors must believe there is a strong likelihood that if they do not settle the account with you, they will not receive any additional payments from you. If successful, you can typically expect to settle the account for 40-60% of the current balance. While this is a great way to eliminate your debt entirely at a reduced cost, it can have a significant impact on your credit rating and ability to borrow money in the future.

Debt Consolidation

Debt Consolidation is the process in which you roll the outstanding balances of multiple accounts into one new loan. The goal of this method is to secure a new loan with more aggressive terms to help reduce the monthly payment and interest cost. Many consumers initially explore secured loans (Home Equity Lines of Credit, Mortgages, etc) since they often come with more favorable terms. If you are unable to qualify for a secured loan, the next category is unsecured personal loans and lines of credit.

Consumer Credit Counseling (CCCS)

Consumer Credit Counseling is a viable option if you feel that you could use assistance with putting together a family budget to help control spending. CCCS can also help with debt settlement by working with your creditors to restructure your debt. The process can often take 3 - 5 years. If you are considering this option, it is important that you research the organizations available to help you. While there are many non-profit and for-profit counseling groups advertising their desire to help you, some are ineffective and or operating fraudulently.

It is unreasonable to think that most American families will never have to rely on consumer credit to make ends meet - especially during times like these. You should put together a plan to help manage any debt you take on prior to it becoming a problem.

Sources

Federal Reserve

U.S. Department of Commerce

About the Author

Chris Rocks is the Founder and Executive Director of the Credit Advisory Alliance (CAA), a membership based organization helping those who have suffered a financial crisis restore their credit and reinsert themselves back into the credit-driven economy. Prior to founding CAA, Chris had successfully helped consumers achieve their financial goals as both a Financial Advisor and the Vice President of a Mortgage Origination Firm.

(3 votes, average: 5 out of 5)

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We here at DebtHelp pride ourselves on being the one site and the one solution for all of your debt needs. However, with the total consumer credit debt reaching $12.8 trillion in 2008, sometimes the best debt help is looking yourself in the mirror. According to some sources, household debt averaged a record 133.7% of disposable income in the fourth quarter of 2007 - that means that people spent 33.7% more than they made. There are many of us who have more than $10,000 in credit card or other forms of debt, and the numbers just keep growing. However, there are many of us who are below the national average for debt amounts, yet we still have debt. The natural question is are debt consolidation and debt settlement companies right for those of us who are just a little bit in debt?

The answer is “maybe not”. Obviously, each person’s debt situation is unique and their ability to deal with their debt primarily depends on their level of debt, their ability to exercise self-control and their general prospects going forward. That is why we put together 3 easy steps to help those of us who are just a little bit in debt, become debt free.

1. Develop a budget. There are many ways to develop a budget for yourself and your family. There is the traditional method (yeah, the pen-and-paper kind) and there are also many different softwares that you can buy and download that enable you to sync up with your bank accounts to analyze your spending. However, there are also online options. One of our favorites is the personal finance site Mint.com. Mint is a free (yes it is free) web-based solution for online financial management. It enables its users to connect to their bank and credit card accounts and analyze their spending in a single screen. Here comes the best part - they also search through various offers on the Internet that match your current spending habits to help you save money.

2. Work out a plan with your creditors. One surprising fact that you may not be aware of is that your creditors actually do not want to turn you over to the collection agencies. When a collection agency gets a hold of an account, they get to keep an average of 33% of the money that they collect for that account. Since all of the creditors are businesses, their preference would be to keep all of the money collected; therefore, contacting your creditors when you realize that you are having trouble making your ends meet, rather than waiting for them to turn you over to a collection agency, will enable you to work out a payment plan with them. Many creditors have various options available and are more willing to work with you to get all of the money paid, rather than just turn you over to the collections.

3. Understand the difference between secured and unsecured loans. A secured loan is one that is backed by an asset and usually refers to auto loans, mortgages, etc. An unsecured loan is not tied to any asset and usually includes credit card debt, student loans, etc. If you get behind on payments for a secure loan, the creditors can come and collect the asset. That means if it is a car loan, they can come and repossess your car at any time - no notice required. If the asset happens to be your house, then the lenders can start the foreclosure process. Either way, the best way to prevent these actions from occurring is to be open with your creditors. Contact them as soon as you realize you are having a difficult time making your payments. By working closely with them, you can set up a payment plan that will enable you to keep your car, your house and your credit history in good shape.

Using these tips, you will be able to start damage control and utilize self help for your debt problem. If you are considering contacting a debt consolidation or a debt negotiation agency, we recommend using our debt consolidation service to find the right agency for you. You can also visit the Federal Trade Commission for additional information on Choosing a Credit Counselor.

As always, if you have other tips and recommendations, we would love to hear from you.

DebtHelp team.

(4 votes, average: 5 out of 5)

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