There are millions of indebted consumers who are currently struggling with their unsecured debt, usually in the form of high-interest credit card debt. Given this fact, it is not at all surprising that there is an abundance of debt management advice available about the topic of debt relief. The problem is that there are certain myths pertaining to the management of debt that tend to be repeated, and many consumers unfortunately may fall victim to this misinformation. Because of this, it is important to separate the facts from the myths and take the time to understand some of the most common misconceptions of credit card debt relief. Providing some clarity around these issues will be beneficial to those who can ill afford to add to their list of financial challenges. Here are some to be aware of:
- Use your low-interest home equity line of credit (HELOC) to pay off your debt
While it seems logical to consolidate the unsecured debt at a lower interest rate to save on the interest expense, there is a very serious drawback to this plan that usually goes unmentioned. Trading unsecured debt for secured debt transforms the corresponding worst-case scenarios from damaged credit with the credit cards into possible loss of the home with the HELOC.
- Get a debt consolidation loan
Getting approved for a debt consolidation loan in the current lending environment is nearly impossible, especially if you have lots of debt. These loans were once readily available but that time has passed.
- Just sit tight; things will probably get better
Don’t confuse inaction with not making a decision. Doing nothing is a decision, and where debt is concerned it can prove very costly. If you have a serious debt problem, then you should decide to do something about it now. Start off by educating yourself about the debt relief options available.
- Declare bankruptcy, wash your hands of the debt and start over
The bankruptcy laws changed in 2005, making it a lot tougher to qualify for a “clean slate” Chapter 7. There is now a 2-part “means test” which you must pass, otherwise you’ll have to do a Chapter 13 and commit to a court-structured repayment plan. Your credit will also be ruined for 7 to 10 years, or even more.
- Slash your monthly payments by enrolling in a Debt Management Program (DMP)
Debt Management Programs are available through Consumer Credit Counseling Services, however these agencies are closely tied to your nemesis: the credit card companies. Balances must be repaid in full. Most consumers end up with a monthly payment very similar to the one they had (once the fees are added in), and because of this there is a very high failure rate for these programs.