Debt Annihilation

There are lots of programs right now to help reduce credit card debt. I didn't realize what the different names meant and I was briefly lead astray, so let me try to clarify it a little for you.

Debt Reduction/Debt Relief: This is an aggressive form of relieving your debt. The for-profit company encourages you to stop paying your monthly minimums until the creditors send your accounts to collections and then they settle your debt for a small fraction of the original amount. It can be very helpful if you are already in trouble with your creditors, but it is not without risk, you can be sued and the debt relief folks will not help.

Credit Counseling/Debt Management: If you are, like I am, current with all your accounts but mired in high interest rates that make your minimum payments simply a piling up of interest payments that don't reduce your total debt, you may benefit from Credit Counseling and a Debt Management Plan. You talk to a non-profit agency (non-profit does not mean free and if you chose to do the DMP there will be fees for the services) and lay out a realistic budget based on every aspect of income and expense you can imagine. The counselor will then figure out how much you can commit to paying off your debt, they offer a proposal to your creditors to reduce interest rates and monthly payments and the lump sum is automatically withdrawn from your bank account and disbursed appropriately by the DMP. The cons here are you have to close all your accounts and commit to the budget (thus this blog).

Bankruptcy: Often a last resort, but in this economy not an unusual one. You will need an attorney to declare bankruptcy, but if you are at the end of your financial rope know that bankruptcy is not the end of the world and can be a very positive solution.

The National Foundation for Credit Counseling is a great resource for additional information.

Finances are very private to most of us, but many people are in a similar boat and I have found great support from friends and family that have had similar issues.

As scary as life on a budget seems to me right now I think it is a healthy step, not only for me but for many. If we learned anything when the economy cratered it is that nothing is guaranteed in life and having a budget and some savings is just good common sense.