When an individual is in debt, it means that they owe something, usually money. The individual who owes the money is called the debtor. The party to whom the money is owed is called the creditor.
In many cases, a creditor is a lending institution such as a bank. It may also be a credit card company. Debts may also involve other assets such as an interest in property.
What are the Legal Consequences of Debt?
The legal consequences of debt may depend on whether the debt is secured or unsecured debt. Consumer and corporate debts can be either secured or unsecured.
A secured debt is a debt in which a creditor is permitted to take back some of the debtor’s real or personal property if the loan enters default status. In other words, when the debtor is not able to make monthly payments.
Secured debt typically involves a mortgage or a car loan. For this type of debt, the security on the loan is the house or car, which the individual has pledged to use as collateral for their loan.
An unsecured debt does not involve any type of property used as collateral or security on the loan. In these situations, the creditor is initially prevented from obtaining the debtor’s assets as payment for the loan.
Because of this, a creditor typically must resort to some other means of collection which may include hiring an independent collection agency or by filing a lawsuit in court. Credit card debt is the most common form of unsecured debt.
It is important to be aware that there are a variety of state laws that ensure creditors do not treat debtors unfairly. The main federal statute that regulates creditor collections is the Fair Debt Collection Practices Act (FDCPA).
The FDCPA applies to the manner in which a bill collector is allowed to pursue making collections. For example, creditors are prohibited from calling at certain hours and making a threat in order to force a debtor to make a payment.
What is Paying off Credit Card Debt?
Credit card debt is one of the few types of debt that actually increases over time. By choosing to only pay the minimum amount due on a credit card bill, an individual is subjecting themselves to interest fees. Those interest fees can have an enormous impact on their budget over time.
It is important to remember that the minimum payment percentage rate that is established by a lender is done to ensure that an individual does not completely pay off their debt for a long period of time. By paying on the minimum amount required, an individual is subjecting themselves to years of payments with large amounts of interest tacked on.
The faster an individual pays off a credit card debt, the smaller the amount of fees they will have to pay. As a result, the individual will save money. This is the reason paying off credit card debt completely should be a main goal of an individual’s budget.
How Can I Pay My Credit Card Debt Faster?
There are many strategies an individual can choose from when trying to pay their credit card debt off faster. The main strategy to pay off credit card debt faster is to develop a set plan and stick to it.
Some strategies to help an individual pay off credit card debt include:
- Targeting one debt at a time;
- Pay more than the minimum payment;
- Consolidate all credit cards into one; and
- Create a budget.
An individual may choose to focus on one credit card balance. Try to pay a larger amount than the minimum payment in order to get rid of that debt faster.
Once that card is paid off, move on to the next credit card. If an individual tries this strategy, it may be easier to begin with the card with the lowest balance.
One of the most effective strategies is to pay more than the minimum payment. Paying over the minimum payment allows an individual to avoid those high interest charges.
Consolidating all of an individual’s credit card debts into one may make it easier to keep up with multiple debts. The individual can then possibly pay down the debt faster and be less likely to miss a payment.
An important strategy for any debt payment is to create a budget. Creating a budget can allow an individual to pay more in most cases because they are aware of how much they are actually spending and where they can make cut backs.
What if my Credit Card has a High Interest Rate?
One of the first issues to examine is the interest rates on a credit card. In general, it is best to find a credit card that has the lowest interest rate possible.
Once an individual has found a credit card with a low interest rate, they should compare it to their current credit card. If their current credit card has a higher interest rate, they may be able to call their credit card company and negotiate for a lower interest rate.
The individual may just state that they have found another credit card with a lower interest rate and that unless the interest rate on their current credit card can be reduced, they will be forced to switch credit cards. If the individual has a good credit history, this tactic will usually work and the interest rate will be reduced. Remember, it never hurts to ask.
What is Debt Consolidation?
Debt consolidation is a method in which an individual combines all of their bills into one monthly payment. By combining bills, an individual may be able to decrease the amount they pay per month and reduce or even eliminate interest rates. There are companies that specialize in this process, called debt consolidation companies.
Most unsecured debts can be consolidated. These include:
- Credit Card Debts;
- Medical Bills;
- Student Loans; and
There are some debts that cannot be consolidated. These include secured debts, such as mortgages.
There are two basic types of debt consolidation, including a debt consolidation loan and a debt management plan. A debt consolidation loan allows an individual to combine all of their debts into a single loan that they pay on monthly.
A debt consolidation loan will stop an individual’s creditors from calling and may save them from bankruptcy. This type of loan, however, requires the individual to own a home against which they can take out or refinance a loan.
A debt management plan is an agreement an individual’s debt consolidation company negotiates with their creditors. This plan describes how and when an individual is going to pay off their creditors.
If an individual can stick to their plan, their monthly payments will go down and they can completely pay off their debt. A debt management plan can also stop creditors from calling the individual. In addition, it does not require the individual to own a home.
Should I Seek Legal Help?
Yes, it is essential to have the assistance of an experienced credit lawyer for any issues you may have paying off your credit card debt. It may be helpful to find a lawyer with experience dealing with consumer credit issues.
An attorney can also advise you regarding what protections you may have from creditors under federal law and under your state laws. Your attorney can also assist you with making a plan to consolidate and pay off your debts.