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How to Get Control of Credit Card Debt

How to Get Control of Credit Card Debt
by Meiling Hunter

If you are up to your eyeballs in credit card debt, now is the time to get a handle on your financial situation and pay it off. Even if you have over $10,000 in credit card debt there are several debt relief options available to help you improve your financial future.

Credit Counseling: Understand Your Debt Problem
If you feel that you need a professional to help you gain control of your bills, credit counseling can be a great debt relief option. Your counselor can provide general budgeting and money management advice and may also negotiate with your creditors to eliminate late fees, extend the term of your loan, and/or lower your interest rates. Typically your credit counselor will encourage you to enter a debt management plan requiring you make a single payment to the agency each month, which then they will pay to your creditors. By entering into a debt management plan, you only need to make one payment a month to the agency and will no longer be burdened with writing multiple checks to your creditors.

Pay Off Credit Cards with a Debt Consolidation Loan
When consolidating your debt, you have to qualify for a loan. One option for debt consolidation is an unsecured loan. With unsecured loans, you can consolidate your debt into one monthly payment and the loan will not be collateralized by your assets.

If you are a homeowner, you may qualify for a home equity loan for the financing you need. Home equity loans are mortgages secured by a lien against your property. Since your equity loan is secured, you will be offered lower interest rates and may qualify for larger loan amounts. Because your home is on the line, be sure that you can successfully make this payment -- don't add a home foreclosure to your already troubled credit history.

Weighing Your Debt Relief Options
To ease your anxiety over shopping for a payday loan, here are some tips to ensure that you are getting the best deal on your loan:

  • Know that trustworthy online payday loan companies always post their APRs (annual percentage rates) and other applicable fees on their websites.
  • Do not only focus on APR, also look at payment options to make sure that you can afford the repayment plan.
  • If you have any questions regarding your rate, repayment options, fees, or other concerns regarding your payday loan, you should be able to contact a representative or reference your chosen company's FAQ website to answer all of your questions.

The Online Loan Application Process
When determining which debt relief option is best for you, consider the following:

Credit Counseling

  • If you are unable to make the payments to your debt management plan, you may lose the associated benefits such as lower interest rates and fee waivers.
  • Debt management plans usually only tackle unsecured debt; if you have a mortgage or a car loan, contact those creditors directly or you could lose your property. Ask which debts will be included and excluded from your debt management plan. These plans aren't for everyone -- make sure that most of your payment is going to satisfy your creditors, and make sure the payment is within your means. A good counselor will create an individualized plan, not ram every client into some cookie-cutter solution.
  • Inquire if your agency offers workshops or educational materials. Getting educated on budgeting and credit will help you avoid the same pitfalls in the future.
Debt Consolidation
  • If you choose a home equity loan to consolidate your debt, remember that you could lose your home if you miss payments. And if you think you might file for bankruptcy protection you probably won't want to take unsecured credit card debt and turn it into secured home equity debt. Credit card balances are generally discharged in a Chapter 7 filing, while home equity debt will have to be paid in full by you.
  • Debt consolidation loans secured by your home do have some costs, such as the fee for an appraisal and other lender charges. Still, home equity debt consolidation loans can offer the benefit of a tax deduction (check with a tax pro to be sure) which can offset much or all of their costs.

Getting Your Cash Advance
Since your cash advance is deposited electronically into your account, you don't have wait in line at the bank nor do you have to wait for your check to clear. The funds are there for you to use at your discretion within 24 hours.

Loan Repayment Options
Again, this whole process is paperless -- from start to finish. Payments are handled online and most payday loan companies will set up an automatic payments from your checking account on the specified due dates. At the beginning of your repayment period you are mainly repaying finance charges. Like most loans, as it amortizes, or is paid off, a greater portion of the payment will be allocated towards retiring the principal. At any time you can arrange to pay more towards the principal on your loan or pay off the entire balance.

Payday Loan Pitfalls
Payday loans may be your best option if you have a financial emergency. They can help you avoid high bounced check fees, late charges, and dings to your credit. However, payday loans are also characterized by relatively high interest rates, origination fees, late fees, and other charges. Avoid getting trapped into an expensive and protracted payday loan repayment by determining exactly when and how you will repay the loan, and then sticking to that plan. If you find yourself making repeated use of a payday loan service you probably have a debt management problem -- one that might be better relieved with some credit counseling and some fiscal discipline.

Payday loans have their place in the credit world, and have functioned as a bulwark against financial catastrophe for many. And now they are easier to get and more convenient to repay thanks to automated servicing and application processes.

Sources
Better Business Bureau
Federal Trade Commission
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