The State of California has seen some hard financial times. Residents of San Diego, Los Angeles, Sacramento, and San Francisco and all over CA have been struggling with debt – medical bills, credit cards and mortgages. According to CreditCards.com the average credit card debt for California households is $4,762. Californians have an average of $253,120 in mortgage debt. And those residents graduating from college this past year owed $23,340 in student loan debt. If you add up just mortgage and credit card debt this means the average Californian is carrying $257,882 in debt. If you are a Californian with credit card debt this means your total debt load could be around $281,222
The picture for Californian becomes even bleaker when considering other factors such as their average credit score which is just 687. Unemployment continues to plague California as it remains at 6.5%. And the state’s median income is just $57,528 – down 10% since the state’s best year.
This past year California saw 245,895 foreclosures and 43,373 people filed for bankruptcy.
What can they do about all this? Is there debt relief available?
Let us talk about California debt consolidation
People from San Diego, Los Angeles and Sacramento are searching the most for debt consolidation in California. The debt solution that most of us are familiar with is called debt consolidation. The idea behind this is very simple and easy to understand. It means combining all of your outstanding debts into a new loan with better terms such as a lower interest rate and more time to repay the money.
Debt consolidation loans come in two flavors – secured and unsecured. An unsecured loan is just that, a loan where you are not required to provide any collateral to secure it. These loans are often called signature loans because if you qualify for one all you need to do is sign a note and the money is yours. Of course, if you’re having a serious problem with debt you may find it very difficult, if not impossible, to get an unsecured loan.
While it’s possible to use just about any valuable asset as collateral to get a secured loan most people use their homes in the form of a home equity loan or homeowner equity line of credit. Home equity loans are often called second mortgages and generally have a term of 20 to 30 years. In comparison, a homeowner equity line of credit generally has a term of just five, seven or 10 years.
What both these types of loans have in common is the word “equity,” meaning that you must have enough equity in your home to borrow whatever amount you need to consolidate your other debts. If you are not familiar with the term “equity,” it’s the difference between how much you owe on your home and how much it’s worth. For example, if your home is worth $200,000 but you owe only $150,000 on your mortgage you’d have $50,000 in equity. However, in most cases you would not be able to borrow the entire $50,000. This is because most lenders use the 80% rule, which means that they would lend only up to 80% of your equity. So if did have $50,000 in equity it’s likely that you would be able to borrow only up to $40,000. If you, like millions of American homeowners, are “underwater” and owe more on your house than it’s worth then unfortunately a home equity loan or homeowner equity line of credit would be totally out of question.
Consolidation through balance transfers
If you are one of the unfortunates and cannot get either a secured or unsecured debt consolidation loan there is a second possibility. If most of your debt is in the form of credit card debts you might be able to transfer them to a new credit card with a much lower interest rate. Even better, if you qualify you could transfer all of those credit card balances to a 0% interest balance transfer card. This would give you a timeout of anywhere from 6 to 18 months during which you would not be required to pay interest at all. Instead, all of your payments would go towards reducing your balance. If you worked really hard on that balance you could possibly get it down to zero before your interest-free introductory period expired.
About debt settlement in California
A third option for debt consolidation in California is debt settlement. This can be especially helpful to residents of Los Angeles, San Diego and San Francisco. Debt settlement is certainly a better alternative than either a Chapter 7 or Chapter 13 bankruptcy as it would not damage your credit score as severely. Credit card debt settlement generally helps people become debt free quicker than does a chapter 13 bankruptcy. Plus, it can get debts slashed by as much as 50%.
How debt settlement works
The short explanation of how debt settlement works is that you contract with a debt settlement company to negotiate with your creditors on your behalf. Once you sign a contract or an agreement with one of these companies you stop making payments to your creditors. Instead, you send a check once a month to the debt settlement company. Reputable settlement companies deposit this money into an escrow account that you control. When enough money has accrued in your account, the debt settlement company will then begin negotiating with your lenders to settle your debts.
Debts that can be settled
Debt settlement can be a very good solution to debt problems but only if most or all your debts are unsecured – such as credit card debts, personal lines of credit, past-due utility bills and cell phone bills from providers you no longer use. Secured debts such as an auto loan or home mortgage cannot be settled just as they cannot be dismissed in a bankruptcy. It’s also not possible to settle some types of unsecured debts including spousal support, alimony, child support, student loan debts and tax debts.
The good and the bad of debt settlement
Of course, the best “good “of debt settlement is that it can save you a lot of money and enable you to become debt free in just 24 to 48 months. You will have consolidated all of your unsecured debts as you’ll be making only the one payment a month instead of the many payments you may currently be making. In addition, you’ll be free from having to talk with your lenders or debt collectors as the debt settlement company will assume the responsibility for handling them.
The downside or “bad” of debt settlement is that it will ding your credit score by anywhere from 80 to 100 points though it won’t damage it as much as if you were to file for bankruptcy, which could reduce your score by 200 to 250 points. Also, debts that have been settled are never reported to the credit bureaus as “paid in full.” They will be reported as “settlement,” “settled” or “settled for less than full amount”. These reports will stay in your credit files for seven years but do decrease in importance as the years go by.
California credit counseling
A less aggressive credit relief program is credit counseling. Agencies that do consumer credit counseling can be found on the Internet or there could be one where you live. In either case you will have a credit counselor who will review your assets, earning and debts and likely help you develop a debt management plan or DMP. This plan will be based not on how much you owe your creditors but how much you could actually afford to pay on your debts. Your credit counselor will contact your lenders and attempt to negotiate reductions in your interest rates. Following this he or she will present your DMP to your lenders for approval. If all, or most all, of them accept your plan you will no longer be required to pay them. You will send a check a month to the credit counseling agency and it will distribute the appropriate amounts of money to your creditors. Your debts will be consolidated and your monthly payment to the credit counseling agency should be much less than the total of the payments you been making. Do be aware that you’ll be required to give up all of the credit cards that are in your DMP and strongly cautioned not to take on any new debt until you complete your DMP, which typically takes five years.
While consumer credit counseling services can usually reduce your interest rates and lower your monthly payments they can do nothing to reduce your principal balance. This is the same as with a debt consolidation loan or a credit card balances transfer. If you owed, say, $30,000 before you went to a credit-counseling agency, got a debt consolidation loan or did a balance transfer you would still owe $30,000 afterwards. In fact, debt settlement is the only way to get debts reduced instead I’m just moving them from one group of lenders to a new one.
Credit counseling in California can be a low cost option for credit card relief but may not provide as much relief as you need to escape from your debts.
Avoiding bankruptcy in California
Although bankruptcy in California is an option for debt relief it is not recommended because of the negative results on your credit report and score and its results may not be what you expected. Many of the Californians who file bankruptcy once will have to file again a few short years later.
There are cases where filing for bankruptcy is a viable option as it can prevent foreclosure and help you save your home. However, the effects of a bankruptcy can be severe. For one thing you will have a very hard time getting new credit for two or three years after your bankruptcy. Any credit you are able to get will have a very high interest rate. Your insurance premiums may go up and you could find it very difficult to rent a house or an apartment. The stigma of a bankruptcy will stay in your credit files for 10 years making it almost impossible for you to buy a house until it falls off your credit reports. Many employers now routinely check credit reports before hiring an employee so a bankruptcy could actually prevent you from getting a job.
Just be sure to research all these options before you decide on a plan to reduce your debts.
Debt Consolidation USA
Debt consolidation, balance transfers, debt settlement, consumer credit and filing for bankruptcy are not the only viable alternatives for managing your debt. When you contact Debt Consolidation USA (www.DebtconsolidtionUSA.com), a credit relief counselor will help you decide which debt solution is best for your financial situation. The debt relief counselors that work at Debt Consolidation USA are friendly, experienced and knowledgeable. Your counselor will explain all of the debt solutions available to you in depth and help you decide which one would be best for you.
Talk with Debt Consolidation USA today about debt consolidation in California to see how much it could save you.
The big credit card companies don’t want you to know about these forms of debt relief but it can be a wise move if you need help in reducing your debts.