Many consumers in debt may look to take a loan to resolve their debt challenges. These loans fall into a few categories:
Debt Consolidation Loan - This can also be called a Home Equity Loan or a refinance. In this case the consumer is borrowing money based upon equity built up in property they own. These loans will sometimes offer attractive interest rates and terms but frequently compound the consumers' debt problems rather than resolve them. As a short-term solution, loans work well because they pay off the consumers' debt quickly, however with their credit cards having zero balances, most consumers are apt to go and start using the cards, thereby starting down the same debt road. The problem they will encounter this time is that not only will they have major credit card debt again, they are also saddled with the loan payment. These are all the ingredients for financial ruin. Debt Consolidation loans are often nothing more than a band-aid to a much bigger financial crisis.
Personal Loan - This is a loan a person can get from their bank. These types of loans are generally unsecured. Like the Debt Consolidation loan, a personal loan is a band-aid approach. This type of loan will be a quick fix leaving the door open for future financial challenges.
Consumer Counseling Service is a program in which creditors lower the interest rate and the monthly payment for one of their consumers. The "not for profit" companies work within parameters set up for them by the creditors themselves and then receive fair share contributions from the creditors based on the money they collect. Consumer Credit Counseling has no effect on debt principal at all. The purpose is to pay the debt in full at a reduced interest rate. The major problem with Consumer Credit Counseling is that the monthly payments are often still too high for the consumer, and it may still take five to seven years to pay the debt off. Keep in mind that the creditors fund these firms themselves and set the terms with little or no negotiating.
Bankruptcy is a proceeding in a federal court in which the assets of an individual experiencing financial difficulty are sold (Chapter 7), and the individual is relieved of further liability to their creditors. Bankruptcy is an extreme option designed to be the last straw. It has a serious lingering affect on credit and can often have negative ramifications in many aspects of everyday life. BANKRUPTCY WILL REMAIN ON A CREDIT REPORT FOR TEN YEARS and may effect your credit for even longer, which can make it difficult or impossible to obtain credit, refinance mortgages, rent apartments, apply for certain jobs and more.
A lot of consumers decide to do nothing until it is too late. They feel if it is out of mind then it is out of sight. Now you start to get bad credit and your interest and late fees go up which increases the amount of total debt you owe.