February 11, 2009

The Causes Of Debt - And What To Do When Bills Go Bad

If you think that debt is exclusively reserved for those with an addiction for shopping, think again. The truth is that more and more Americans are struggling with mounting credit card bills, penalty interest rates and miscellaneous fees. Although unnecessary spending habits can certainly land one in hot water with their budget, there are a number of reasons why many families are in need of debt relief.

Among the most common reasons for needed debt relief are divorce, illness, sudden job loss, a failed business venture and/or excessive spending. Today, the average American family has more than $8,000.00 in credit card debt and may be forced to deal with penalty interest rates from every creditor if they even miss one single payment. How so? When you apply for a credit card, the issuing bank retains the right to monitor your credit report as they see fit. In most cases, the cardholder's agreement will also contain a clause that grants the issuer the right to increase interest rates to a penalty rate if you either fall behind with them or with another creditor. As a cardholder, this means that you only need to miss one payment with one creditor for all of your interest rates to skyrocket.

In addition to credit card debt, there are also secured debts that consist of real estate, automobiles, furniture and certain types of electronics. This type of debt, although costly, is a necessary part of life. The problem is that credit card debt, which is not considered to be a good debt, can prevent you from being able to obtain financing for necessary items, such as a home or a car.

For homeowners who find themselves drowning in a pool of debt, a home equity loan or line of credit may seem like a quick resolution. The problem with this scenario is that unsecured credit card debt will instantly become secured with your home as collateral. When you request a home equity loan or line of credit, you can use the money to pay off credit cards. But, what happens if you later are unable to repay the home equity lender? The unfortunate truth is obvious in that your home may be in jeopardy. Additionally, most who request a home equity loan or line of credit fail to close their credit card accounts once they are paid in full, which leaves the potential for the cards to be maxed out again in the future. In a worst case scenario, you could later end up with a home equity loan or line of credit and a whole new set of credit card bills.

When finances begin to spiral out of control, it's often difficult to recover. For some, debt consolidation or debt settlement may be the answer. Either of these methods can be beneficial and will help you to regain control over your finances. Debt consolidation is a structured repayment program with lower interest and/or monthly payments, whereas debt settlement requires one lump sum payment to permanently settle a debt at a fraction of the actual balance due.

If you are in need of debt relief, the actual method that you choose will greatly depend on the type(s) of debt that you have. Unsecured debt, such as credit cards, can often be settled for as little as 20% of the total account balance. With debt negotiation, creditors are often willing to greatly reduce or even eliminate interest altogether. What this means for you is a fast track to financial freedom and a comfortable view from the driver's seat. Debt wasn't incurred overnight and it will not go away overnight but, with time and dedication, it will go away.

Brian Dolezal
http://www.articlesbase.com/finance-articles/the-causes-of-debt-and-what-to-do-when-bills-go-bad-90104.html

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