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March 14, 2008, Newsletter Issue #55: Bankruptcy Alternatives If You Do Not Own a Home
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Tip of the Week
You have two basic options. Both should be initiated by you, not by your credit card companies. The first possibility is a debt consolidation plan. If you have four credit cards with a total balance of $22,000, you could arrange financing through another source for one loan, at better terms than your current cards provide (lower interest rate, longer payback term, etc.) Instead of being required to make ever-increasing minimum payments to four lenders, you now have only one monthly obligation that will most certainly be less than the amount you now must send every month.
Caution: This option is only available if your credit score has not declined to a level that prohibits new borrowing. If you wish to use this option, do not wait until your situation is bordering on disaster.
The second potential solution is a debt settlement. This option requires you and your credit card companies to “settle” on a percentage of your total debt that you will pay off. In return, the lenders will consider your debt “paid for less than the total amount.” Historically, credit card companies have been willing to settle for 30-50% of your total current outstanding balance. You must be aware, however, that some lenders will hold firm at a level in the 75-80% of total balance, while some may even consider a settlement in the 20-30% range. Once again, this option also assumes you have access to sufficient liquid funds to fulfill your offer in a short period of time, usually less than 10 days.
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