Terrible Debt Repayment Strategies
A recent show on ABC News caught our attention. A young woman discussed with the cable news outlet her strategy for repaying Y in debt. Her plan? To become a “sugar baby” to a wealthier man.
We are confident few people will follow this young woman’s path, but the story got us thinking about terrible debt repayment strategies. As experienced Plantation bankruptcy attorneys, we meet regularly with clients who have tried to repay their loans only to end up even deeper in debt. Had they met with us earlier, we could have saved them time and money.
Below, we identify some of the worst debt repayment strategies and encourage consumers to reach out to us for a free consultation.
Terrible Repayment Strategy #1: Using Home Equity to Repay Debt
Many people have built up considerable equity in their homes through years of diligent mortgage payments. It is tempting to access some of that equity, either with a home equity loan or a home equity line of credit (HELOC). Because interest rates are typically low, some consumers use home equity to consolidate high-interest debt, particularly credit card debt.
This is a terrible strategy. There is a reason why home equity loans and HELOCs have low interest rates—they are backed by the home itself. This means that if you default, your lender can foreclose on the property. That security creates an incentive for lenders to charge low rates.
Even worse, credit card debt is almost always unsecured, meaning that it can be wiped out easily in a Chapter 7 bankruptcy. Why replace unsecured debt with secured debt and possibly lose your home in the process?
Terrible Repayment Strategy #2: Engaging in Debt Settlement
For some, debt settlement sounds like a good idea. It works like this: you offer to pay a percentage of a debt immediately, and the creditor writes off the remainder. Unfortunately, debt settlement has many problems:
- You must save up for your lump sum payment. This means stopping payment on your debts for at least a year, which can lead to stressful collections actions and possibly lawsuits.
- There is no guarantee that the creditor will agree to accept partial payment for the debt.
- Debt settlement companies can charge high fees, which only reduces the amount of debt you can eliminate.
Some people try debt settlement and see the negative consequences before contacting a bankruptcy attorney. The smarter move is to skip debt settlement altogether and call us first.
Terrible Repayment Strategy #3: Paying the Minimum
Consumers who make the minimum payment on credit cards will likely pay double or even triple the amount that they owe when all is said and done. Admittedly, paying the minimum can make sense if you are facing short-term difficulties and know things will turn around soon. But to pay the minimum for years on end only leaves consumers more impoverished.
For immediate assistance with your debt, contact Nowack & Olson today to speak with a Plantation bankruptcy attorney. We can discuss your options, including Chapter 7 bankruptcy, and handle all necessary paperwork. Our consultations are free.