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Personal debt in the United States is now at an all time high.  Many individuals, couples and families have overextended themselves financially are in need of debt relief and are considering bankruptcy.  The further behind you fall in payment of your debts, the more far reaching the results.  Late payments on your car loan and credit cards have serious repercussions in many areas of your life.  However, falling behind in mortgage payments is the most serious problem of all which could result in your home winding up in foreclosure. 

You will be considered a poor credit risk if your FICO score is low and this will affect you financially by resulting in higher interest rates on any future loans. A FICO score is assigned to all credit applicants by the Fair Isaac Corporation and this score is reported to the three national credit bureaus – Experian, Equifax, and Trans Union.  This low score, of course, will result in higher loan payments.  Additionally, many employers check an applicant’s credit history when considering who to hire.  Poor credit may work against you in the job market. 

Repairing your credit should be a serious consideration so that you can catch up with your bills, obtain debt relief, avoid bankruptcy and improve your credit score.  You have several options to choose from to repair your credit:

Debt Consolidation

A debt consolidation loan allows a borrower to pay off existing debt such as car loans, lines of credit, personal loans and existing credit card debt with one single loan.  These debts are added together and instead of paying several creditors separately, only one payment is made – hence “debt consolidation”.  Interest rates on debt consolidation loans are usually significantly lower than the interest rates  charged on the borrower’s individual loans.  Be sure to consult with your tax advisor for specific information. 

Debt Settlement

Following are some – but by no means all - of the signs that you are a good candidate for debt settlement:

1. You have no savings account.
2. You are at or near your credit card limit on all your credit cards.
3. You receive calls from bill collectors.
4. You have no idea how much you owe in total debts.
5. You take out cash advances on your credit cards to pay other bills.

When you are enrolled in a debt settlement program, you are set up on a monthly payment schedule that is approximately 50% of your total minimum debt payments.  The debt settlement company negotiates with your creditors to get them to agree to accept about 40-50% of the total you owe.  When an agreement is reached, the debt settlement company pays your creditors with a lump sum payment. 

Credit Counseling

Consumers in financial difficulty should consider credit counseling as a preferred alternative to filing for bankruptcy.  Credit counselors analyze a borrower’s financial situation and develop a reasonable budget to help the consumer set up a solid financial plan.  This plan will teach the individual to learn to track spending, to save for emergencies and to manage repayment of existing debts.