Credit Problem

Credit problems can occur for a wide variety of reasons, and there are a few different solutions available to debtors that will help them resolve those issues and get on solid ground financially. A debtor can face financial challenges through no fault of his own if there is an unexpected job loss or serious accident or illness in the family that wipes out his assets. The most common credit problems happen over cards. It is all too easy to max out cards and have serious difficulty with trying to keep payments current. Financial burdens can feel insurmountable, so sometimes it is a good idea to get help. Counselors can help debtors resolve these issues by working as intermediaries between debtor and creditor to work out payment plans that the debtor can meet. Debt consolidation loans can be the answer to a credit problem because the creditors are paid off, and the debtor has payments spread over a longer time at a lower interest rate. The bank where the debtor does business will sometimes make such a loan, but it's usually a finance company that does it.

Another source of debt consolidation is the home equity loan, which has become a common debt relief tool in recent years, where there is an income tax break on the interest charged for the amount of the loan. On the down side, it puts a lien on the debtor's home so that if he should want to sell before the loan is paid off, the loan is paid from the proceeds of the sale before the homeowner receives anything. Sometimes a conversation with the creditor will result in a lower interest rate, which can be a big help to the debtor. Occasionally, the solution is as simple as changing the kind of car one drives. A smaller, second-hand car that is more fuel efficient can shave significant sums from the monthly obligations and solve the credit problems quickly. "Better it is to be of an humble spirit with the lowly, than to divide the spoil with the proud" (Proverbs 16:19).

When faced with financial difficulties of any sort, that is the time to do a serious study of the family spending patterns. There may be some expenses that can be eliminated altogether, or postponed. Nonprofit financial counselors can help a debtor decide on a budget that will meet his needs without incurring credit problems. If there is just no other way out, bankruptcy may be the path to solvency. That is always a last resort, but can be a lifesaver when financial burdens are out of control. Again, there is a negative side to the solution. A bankruptcy remains on a debtor's credit report, and thus a credit problem, for ten years. There are creditors who will still work with debtors on necessities like a car, but the interest rates will be higher. In the absence of catastrophic events, budgeting and careful use of credit is the best insurance against a credit problem.

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