Debt consolidation is one option you have for eliminating your debt problems. Debt in the form of loans, house payments, credit cards, and other bills can often add up in a hurry. It’s as easy as falling behind on your payments for just one month - one slip can have you struggling to catch up for months after - or even years. Borrow money to pay for these debts and you could find yourself with even higher payments than before and for a longer amount of time.

What Are Your Options?

When it comes to getting rid of your debt, your options are many: filing for bankruptcy, dipping into your personal savings, borrowing money from relatives or friends, and debt consolidation.

Bankruptcy

Filing for chapter 7 and chapter 13 bankruptcy are one of the most common forms of handling debt. The up side is that the majority of your debt will be gone once you’ve filed. The down side is that you may still have to pay certain bills, your credit will be destroyed, and you will still have to make tax payment for another three to five years - and that’s while you struggle to re-build your credit by keeping up with new bills.

Savings Accounts

Is this the emergency you’ve been saving for? Or is this the college fund for the kids or your retirement account? Do you even have a savings that would pay off the debt that you’ve acquired? Emptying your savings account to pay off debt could seriously change the course of your life, depending on your savings goal. Consider carefully before choosing this option.

Borrowing Money

Similarly, borrowing money from friends and family can change your life in ways that you may not be prepared for. Yes, the creditors may not be calling any longer, but holidays and Sunday dinner will never be the same and now when the phone rings, your annoying aunts will have ammunition.

Debt Consolidation

Debt consolidation is the best solution to create a debt-free life for yourself and your family. You work with a financial counselor to create one large debt out of your numerous small one, work with the companies to whom you owe the money and reduce the total payment - and total bill - to something you can handle. The reduction is usually somewhere in the neighborhood of 40% and 60% of where you started. Late fees and taxes are usually taken care of at the same time. And the next time you fight with your mother-in-law, she won’t be able to use your money problems against you!

Craig Thornburrow is an author and business owner. For more information on debt visit his website at: http://www.debtexplorer.com/

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Effects of credit cards and loan accounts can be positive. For example, retail charge cards can be a good way to establish or improve your credit. Because the card limits are generally low, you may pose little risk to the creditor. So, you may be approved with little or no credit history. Using these cards responsibly may help establish your creditworthiness for more significant credit (such as a vehicle loan or a mortgage) in the future. Unfortunately, the interest rate on charge cards is much higher than regular credit cards because of the higher risk involved. Use these types of cards sparingly.

Like retail charge cards, secured cards can be the first step toward repairing your credit history. With secured credit cards, you are required to deposit money with the issuer of the secured card that partially or completely covers the amount you may charge on your card. If you default on your card payments, the creditor may withdraw the money you have on deposit to repay the debt. In some cases, however, the card may be converted to an unsecured card if you make satisfactory payments for a specified length of time. Your secured card will help you establish or improve your credit only if you make the payments in a timely manner. Even though you have money on deposit with the card issuer to secure the debt, you must pay at least the monthly minimum to keep your credit history from looking even worse.

On the other hand, loans and credit cards can have a negative
impact. First of all, applications for credit are reported to credit bureaus as an “inquiry” and remain on your report for 24 months. Lenders may become suspicious if they see numerous credit applications within a short period of time. Fearing that you may become overextended on the amount of debt you can handle, they may deny you credit simply because you’ve applied for too much.

Furthermore, late and missed payments will appear on your credit report. For each credit account you have, your credit report will contain a detailed history of your payment record over the last 12 to 24 months. Derogatory
information may remain there for seven years or longer, depending on the type of notation. Each time you’re late making your credit card payment or miss a payment, you’re undermining your credit history and weakening your chance to obtain loans in the future.

Finally, all open accounts with no balances also appear on your credit report, even if you don’t use them. Because they increase your potential debt-to-income ratio, open but currently unused accounts can prevent you from obtaining new credit. To prevent this situation, get a copy of your credit report. If your report shows that you have cards you no longer use, call the issuing companies to cancel them.

These are just a few ways credit applications and accounts can affect your credit. To learn more, visit http://www.directlendingsolutions.com

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