Now really is the best time to renegotiate your consumer debt with a qualified debt settlement company.
With every passing economic crisis and ensuing recession we live through, Americans are treated to a silver lining amongst all of the worry: we always learn new lessons. If you’re one of the many hundreds of thousands of our nation’s citizens facing mounting household or consumer debt because of home, car, or credit purchases, it should be gratifying to know you’re not alone. Not only are you not alone; according to some government figures, you’re actually in the majority.
Consider that while the average population growth rate in America for the last decade has remained flat, total consumer debt has increased over fifty percent, from about $1.5 trillion dollars in 2000 to over $2.5 trillion dollars today. According to the latest 2010 U.S. Census Records, that averages out to about $22,445.00 in outstanding debt balance for every single household in the country. Compare that to the outstanding total consumer debt levels of 1985, just twenty-five years ago, at only half a trillion dollars. Go back even further; say sixty years ago to 1950 and you’ll be looking at national debt figures that today couldn’t buy you a condo in Miami Beach.
While it’s important to understand what has led to the surging boom in total consumer debt levels, it’s equally important to understand what it is you can and cannot do about it. In this article, well be touching on both of those subjects in an easy-to-read and practical manner and help you find the answers that you as a borrower needs right now.
Let’s first start by understand what separates consumer debt from other forms of debt. Macroeconomic definitions give that consumer debt is debt that has been taken on to fund consumption by an individual. In other words, there are two different kinds of debt. There’s consumer debt as defined by the borrower taking on the credit to purchase goods and services. The other kind of debt can be considered “healthy” debt because it is characterized by a borrower taking on credit to make some kind of investment.
Let’s recognize some examples. A couple takes on a car loan to purchase a new vehicle (consumer debt) and that same couple takes on a small business loan to open a bakery (investment debt). While the new car will be consumed, utilized, and eventually discarded while slowly over time decreasing in value, the bakery will generate revenue and profits. Should the profits over time exceed the amount of interest that has been charged to the borrowers in return for the loan as expected, the investment debt becomes “healthy” debt for the couple.
We can consider other less obvious examples as well. How about a mortgage? A mortgage does not generate revenue or profits, yet a house isn’t really a consumable product, is it? In this case, a mortgage would be considered “healthy” debt because the interest on long-term secured loans (“secured” means the loan has a real, hard asset backing it, in this case, a house) is relatively low. Further, suitable shelter is an innate human necessity, and beyond that simple fact there is a certain positive stigma and patriotic confidence attached to being a homeowner we enjoy: in many ways, to own a home is to be living the American dream.
Other examples of hazardous consumer debt are more obvious, the most notable being credit card debt, accumulated by purchasing products and services on high-interest penalty credit cards. There is said to be some $967 billion dollars in outstanding credit card debt among consumers in the United States, and that number has been and continues to grow. The average debt balance among credit card users in the US is $3,000, a figure that reflects all products and services purchased with credit cards.
Credit card companies make a lot of money – they make even more when a borrower is late on a regular payment or defaults all together. The reason is because the company will recalculate your credit card balance everyday for the purpose of continuously charging interest. In other words, the credit card balance is constantly compounded by the interest rate you are paying and can and likely will fluctuate drastically. If you're heavily defaulting on your payments, understand that your APY (annual percentage yield, the amount of interest that you’re paying to borrow money using a credit card) can be as high as 22%; you'll owe $1.22 for every $1 you borrow. And the longer you wait to pay, the worse it gets. Imagine you’re in default for six months. Not only will you now owe interest on the principle amount of money you’ve charged to the card, but you’ll owe interest on the late fees and default fees that have been compounded as well, sometime doubling or tripling your original balance.
Once you begun to default on your credit card payments, you will have instantly entangled yourself in a snowball that is starting down a hill and seemingly can’t be stopped. Add to that one of the greatest and most devastating recessions America has ever experienced, and you’re issues are exasperated ten-fold. The financial meltdown on Wall Street in 2008 has become salt in the wounds of consumers who were already devoured by personal hardships, and things don’t seem to be getting much better anytime soon.
However, in the wake of the recession, there is some good news for the credit card holder after all now and going forward.
The "provision for credit loss" is an estimate banks and credit card companies report to their shareholders four times a year that basically gives a measure of how much the instruction expects to lose because of consumer credit default. While provisions for losses were soaring during the height of the recession during the last few months of 2008 for almost every creditor in the US, the last year and a half has brought lower figures and expectations from creditors. That’s good news for the consumer and credit card holder that is facing default because it means credit card companies and institutions have been working with debt settlement agencies. Here’s why: credit card companies and institutions have two choices when dealing with a default borrower; allow the borrower to continue to default, eventually forcing a personal bankruptcy in which case they have no chance of getting repaid, or work out a settlement or repayment plan with a borrower's professionally hired debt settlement representative.
Clearly, they will choose to work out a settlement, and considering the revisions for lower provisions for credit losses credit card companies and institutions have been reporting in 2010 and are expected to continue to report throughout the rest of the year, now really is the best time to talk to an experienced, qualified debt settlement agency with a track record of success and proven results who will work in your best interest to reduce or eliminate your debt.
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