Sometimes, taking on debt is necessary. You have more expenses than you anticipated for the month, or your income drops unexpectedly. Having revolving credit or a personal loan can allow you to pay your bills. Unfortunately, credit is easy to access and to misuse.
A large percentage of the population has more credit card debt than they can reasonably repay. Some of these people will fall victim to questionable credit card debt solutions that may offer more problems than relief.
What are the most common debt solutions, and why are they often anything but a solution?
Credit card consolidation
When you have multiple different credit cards, you have to pay different accounts at different times of the month. Between the possibility that you might confuse your due dates and have a late payment fee and the risk of overextending yourself on multiple cards simultaneously, multiple cards can be a problem.
Consolidating them to one debt means only making one payment, but it also means that you may be able to rack up additional debts on the credit cards that you consolidate. Additionally, you will typically need to take on a new loan to consolidate your credit card.
Credit card settlement services
Debt settlement services tell you that they can settle your credit card balances, leaving you responsible only for a portion of the total amount due. Unfortunately, there are several issues with this system.
One is that the credit card companies can report the settlement to the credit bureaus, dragging down your credit score. Another is that, like with consolidation, you will need to take out a loan to pay the settlement amount in many cases.
Credit card transfers balance transfers
Moving the money you owe on one credit card to a different account with a higher limit or a lower interest rate can reduce how much you pay for borrowing money. However, balance transfers don’t reduce how much you owe and often come with fees that are significant and interest penalties if you do not pay the balance in full within a certain amount of time.
Compared with these so-called solutions, bankruptcy is often a much better option. It will actually discharge the remaining balance on your credit cards and help you regain control over your finances. Comparing personal bankruptcy with the debt solutions you find yourself considering can help you decide which solution is actually best for your situation.