Negotiate With The Credit Card Companies

Category: Finance, Credit.

I couldn t help but notice there have been a few articles circulating around espousing the merits of taking a home equity loan out to pay off your high interest credit card debt or other types of unsecured debt.

Here is my problem with consumers taking out these types of loans. Did you look to see that they are written by mortgage brokers? One, they are attempting to borrow their way out of debt, which is impossible and overall, just a terrible idea. For most people, this is their single biggest investment and financial asset. Secondly, they are borrowing from what is essentially the savings account of their home equity. So, this loan to pay off unsecured debt is secured by the roof over their heads which costs more each month when a loan is taken out against it.

You get a bigger house payment with the borrowed money, your credit cards get paid off but you don t cut them up. Here is a worst case scenario that is all too common you might envision before taking out one of these types of loans. Six months to a year later, you have them maxed out again but now you get laid off. If you can t make the payment on it, you are in more danger of losing your home than you were before you took it out. The cards may never be paid and you have all the credit problems associated with being unable to pay them along with a higher mortgage payment. But most tragically, you have nothing to show for the thousands more you now owe on your home. Even in the best case scenario, you are now years longer away from paying the house off and if you pay off the cards and cut them up, you have less equity in your home in exchange for items you bought with high interest credit cards.

Thousands you may have spent years paying down from the original debt. In my opinion, it is a bad trade and only the credit card companies and the companies that originate the home equity loans win. What do you really have to show for borrowing more money to pay off money you effectively borrowed at 18% to 29% ? You get stuck with a higher house payment, less money in your equity" savings account" and unsecured creditors get paid with funds taken from your most important asset. What is the alternative? That s what!

Negotiate with the credit card companies. There are ways to make the creditors and collections agencies stop harassing you instantly and in some cases they are trying to collect a debt from you that you no longer owe. And even if you don t have much or any, you still can get them to lower the interest rate, maybe even to 0% or knock off the late fees and get the debt to a manageable level. Remember, you have the one thing they want: MONEY. In addition, you have the ability to dictate your terms to them! While a judgment certainly is a possibility and I don t take the threat of it lightly, it must be done through the courts and you do have options to stop a judgment. If you listen to the collectors, they will have you terrified into thinking the only options are for you to get a loan to pay them or to declare bankruptcy because they will have you convinced they will automatically get a judgment against you and ruin your credit.

When you can t make your house payments it is much harder to stop a foreclosure. So, take the time to think through all the ramifications of a home equity loan to pay off credit cards and go to the trouble to educate yourself on some of your rights along with the protections offered to consumers through federal laws and statutes. Additionally, your credit can be addressed with the credit reporting agencies and is not necessarily going to cause you problems for seven years as they would have you believe. You can get out from under the crushing load of credit card debt with a fresh start, without risking your home. You can overcome or solve or successfully live with any problem you will ever have to face including credit card debt. Believe this! If you are committed to making a plan, working your plan, setting some goals, and doing the things that are proven to work, you will end your credit card nightmare without worrying about a foreclosure nightmare.

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Check Your Credit Report - Juliana Leander's Finance and Credit blog:

Don t feel helpless and hopeless if you have bad credit for this will not last forever. When you have a bad credit situation one of the initial steps that you could take would be to stop using your credit cards for you don t want to continue accumulating credit card purchases and increasing your credit card debt.