According to the Federal Reserve, consumer debt hit $14 trillion this year, surpassing the 2008 recession debt of about $13 trillion. A recent report published by Experian shows the average American has non-mortgage debt of $25,104 and an average balance of $6,506 on credit cards. With increased unsecured debt in the U.S., it’s clear consumers today need urgent help with their debt problems.
Debt Economic Factors
Consumer spending accounts for over two-thirds of activity in our economy. A recent study showed that 68% of adults had no idea if or when they’d ever be debt-free, which includes 30% who predicted they would die before paying their debt. Furthermore, there is over $1.6 trillion in U.S. student loan debt, approximately 11% of which is over 90 days delinquent or in default, according to the New York Federal Reserve. We know that no one wants to stay in debt for the rest of their lives.
The U.S. has been going through periods of recession for over 20 years, and the consumer debt problem persists. The cost of living has gone up, middle class wages have been stagnant and few people have the ability to pay for even a small emergency. At the same time, consumers keep raking up the debt: they shop, they travel, they have unexpected expenses. Then they can’t afford to make payments on their 6-8 average accounts. They are living above their means. Regardless of the reason for this debt crisis, consumers deserve a second chance.
Consumers seeking debt relief are often already behind in their payments and are looking for urgent help. Their credit score has usually been impacted because of late payments, high utilization and too many hard inquiries. Even if their credit has been damaged due to their financial position, the right debt settlement program can help them settle their debts. They can emerge financially free and with rebounding credit.
Understanding Different Debt Relief Methods
Debt management programs often involve credit counseling and getting a creditor to “freeze” one’s account. But the consumer is still on the hook for all the debt plus fees. This doesn’t help with reducing and eliminating debt in the long term, particularly if that high debt made the consumer’s payments unaffordable in the first place.
Similarly, debt consolidation is simply a consolidation of a consumer’s already untenable debt situation. Consolidation creates one monthly payment, a lower payment than the total of all payments the consumer is making currently where the consumer would most likely be paying a lower interest rate, but the problem with debt consolidation is that it doesn’t reduce your principal balance—it’s the original balance plus interest, fees and finance charges.
For both options, consumers with a lower credit score will have a hard time securing the needed debt consolidation loan. This is because most of the consumers who have high debts will have low credit scores.
Debt settlement, the process of settling the consumers debts one-by-one, is a far better option because it actually reduces principal balance. The consumer will pay back substantially less than what they owe. Guardian Debt Relief has been helping consumers eliminate debt for over 7 years, in many cases saving 30-40% what is owed—or more.
Tips for Consumers in Debt
Consumers should seek a debt relief company that is consistent with Federal Trade Commission regulations, and doesn’t charge any upfront fees. A debt relief partner should only be paid once they have successfully resolved the client’s debts. Seek a partner that holds an A+ rating with Better Business Bureau and are members of reputable trade groups like American Fair Credit Counsel. Consumers should do their due diligence and look for a debt relief partner holding these industry credentials to ensure a high level of professionalism and commitment to service.
Consumers can stay out of debt by educating themselves on personal finance. Save a certain amount of money consistently every month—say 10-20% of your income if possible. Pay necessary expenses, such as rent or mortgage, utilities, and food first. Treat credit cards like cash, and pay them in full. Don’t carry a balance on credit cards. Avoid impulse buying by going for a walk in the park instead of at a shopping center. Avoid non-necessities if you are serious about saving money.
To learn more about improving your financial health, check out a Path to Financial Freedom in 3 Steps. It’s packed with useful information and ideas.