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Are you struggling to make the minimum payments on your
credit card balances? Is debt affecting other aspects of
your life? Are you living paycheck to paycheck? Maybe
you are receiving those annoying creditor calls at work,
during dinner, or late at night. Or, maybe you are
"robbing Peter to pay Paul" - constantly transferring
balances in a fruitless attempt to stay ahead of rising
interest rates. Due to some type of hardship (divorce,
illness, layoff, business failure, reduction in hours or
pay), you may have fallen behind in your bills.
Considering bankruptcy? If any or all of these sound
familiar then you most likely require relief through
debt reduction.
We at Armor Financial Services understand your situation
and are here to help. We believe our debt settlement
plan is the most powerful way to reduce unsecured debt
while avoiding bankruptcy. What follows are the five
most common debt reduction options: Continue to make
minimum payments, credit counseling, home equity loans,
debt arbitration (also known as debt settlement), and
bankruptcy. Each debt reduction option has its strengths
and weaknesses, depending on your particular situation.
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-- Option 1 --
Continue to make minimum payments or pay nothing at all
- Interest rates average over 15% and creditors can
raise rates at any time.
- By making minimum payments, you pay nearly 50% of
your original balance in interest alone over the first
3 years and barely make a dent on your principal
balance.
- If your rates are 24% or higher, it is physically
impossible to pay off your debt by making minimum
payments.
- If you only make minimum payments, you do not
reduce your balances and therefore do not help lower
your debt to income ratio.
- There is no guarantee that your minimum payments
will not increase as creditors maintain the right to
raise interest rates at any time.
- If you stop the minimum payments and do nothing,
you will destroy your credit while not eliminating any
debt in the process.
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-- Option 2 --
Enroll in Credit Counseling
- Credit Counseling companies are typically funded
by the same creditors that you owe.
- Credit Counseling is like another form of
"collections" as they charge interest and fees and
disburse your payments directly to your creditors.
- Credit Counseling conveniently consolidates your
bills into one monthly payment.
- It will typically take 5-6 years to pay down debt
in a Credit Counseling program.
- You will pay nearly 25% of your original balance
in interest alone over the first 3 years.
- Credit Counseling companies have pre-negotiated
interest rates with your creditors. These rates may be
higher, lower, or the same as your current rates.
- In Credit Counseling, you will repay the full
balance plus interest to your creditors.
- Credit Counseling companies charge both a set-up
fee and monthly fee, often called a "donation".
Monthly fees may range from $20-$50
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-- Option 3 --
Consolidation loan or Home Equity Loan
- To secure home equity loans or consolidation
loans, you must first qualify.
- Home equity loans require ownership of Real Estate
property or a pledge of collateral.
- Home equity loans reduce the future equity
available in your property.
- If you qualify, you can use home equity loans to
eliminate your credit card balances.
- Rates on home equity loans are typically much
lower than credit card interest rates.
- You will probably be required to pay a transaction
fee upon closing the home equity loan. This fee is
paid upfront or built into the interest rates.
- Missing payments on home equity loans may cause
you to lose the real estate or collateral you pledged,
often your home.
- You will still repay the full amount of your
credit card balances.
- By paying credit cards with home equity loans, you
exchange unsecured debts for a secured debt.
- Home equity loans should not have a negative
affect on your FICO score although they do not lower
your debt to income ratio until you repay the home
equity loan itself.
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-- Option 4 --
Debt Arbitration / Settlement
- Also known as debt settlement, debt arbitration is
the process of negotiating lump settlements on your
unsecured debt.
- The debt arbitration firm negotiates down your
whole principal balance, irrespective of the interest
and finance charges creditors try to add on your
account.
- Debt arbitrators are independent companies not
affiliated with your creditors.
- Debt arbitration companies charge fees but may
finance the fees over time.
- Your debt is paid off in anywhere from three
months to three years depending on your cash
availability.
- While in debt arbitration, payments are not made
to your creditors. This results in an 'open
delinquency' on your credit until the debts are
settled.
- Debt arbitration is not a positive on your credit
and may adversely affect your FICO score, however,
Armor Financial Services will use their extensive
knowledge of the credit reporting industry to minimize
the adverse reporting.
- Debt arbitration lowers your debt to income ratio
more quickly than any other debt reduction option
outside of bankruptcy. Debt to income ratio is a
significant factor used by lenders to qualify you for
a mortgage loan.
- With debt arbitration, you will typically repay
40-60% of your current debt balances
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-- Option 5 --
Bankruptcy Chapter 7 or Bankruptcy Chapter 13
- Bankruptcy has a severe negative impact on your
credit rating for 7-10 years.
- Bankruptcy may cost $500 to $1,000 or more to file
including attorney fees.
- Bankruptcy may have a negative impact on your
employment status.
- In Chapter 13 bankruptcy, you are still required
to pay back a portion of your unsecured debt, in some
cases a full 100%.
- Chapter 7 bankruptcy will eliminate all of your
unsecured debt.
- Bankruptcy will prevent most creditors from
attempting to collect your debts.
- Bankruptcy hurts your FICO score and may result in
higher interest rates on future loans.
- Bankruptcy carries a negative stigma, mental
stress, and other burdens
Bankruptcy should be avoided if at all possible
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