Bills.com Suggests Debt Options Whether Credit Is Good or Bad

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10 ways to cope with crippling debt for any credit score.

It's the best of times, and it can be the worst of times, when it comes to looking at consumer debt, says Bills.com co-founder and co-CEO Brad Stroh, who this week provided a host of options for consumers with any credit rating to cope with debt.

"Home foreclosures hit record levels in 2007. But even those not swept up by the wave of foreclosed mortgages can suffer from excess debt," said Stroh, whose Bills.com (http://www.bills.com) is a free online consumer finance portal. "The good news is no matter what the situation, a solution is available."

Stroh's suggestions for managing debt -- whether with good or bad credit -- follow.

If credit is bad:
Those who are behind on payments, have creditors calling or have given up hope of repaying debts probably realize that their credit rating is likely low and falling. Here are some options that might help:

1. Take a title loan on a vehicle. Owners can borrow against a vehicle with a clear title. Review the rate and terms carefully to tell if you can keep the car, boat or other collateral, or if the lender will hold it for the term of the loan. Understand the payment schedule, because failure to meet any of the terms may result in losing the property.

2. Borrow from a 401(k) or other employer-sponsored retirement account. Most 401(k) plans allow loans from the balance, as long as they are repaid within five years. This option should be used as a last resort. If the money cannot be repaid within five years, taxes and penalties accrue. Also, if the borrower leaves the job associated with the account, the loan will be due immediately.

3. Borrow from family or friends. It probably will save interest charges, but personal loans create the potential for damaged personal relationships, the expectation that you'll return the favor years down the road, and even legal action by someone who was previously a good friend or close family member.

4. Negotiate. Consumers can call creditors and request a lower interest rate. Those who cannot make even minimum payments on bills can try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans. While creditors are under no obligation to negotiate, it is often in their interest to do so, since it makes payoff more likely.

5. Get debt resolution help. A debt resolution firm negotiates on consumers' behalf to lower principal balances due. Consumers then pay the debt resolution firm a portion of the savings. Debt resolution can obtain savings of up to half the full amount owed, and typically provides better repayment terms than those achieved with a Chapter 13 bankruptcy filing - with no permanent bankruptcy judgment.

6. Consult a debt consolidation service. Make sure the service does not charge high fees, and check its reputation with the Better Business Bureau or other consumer protection agency. By working with a debt consolidator, you'll likely sacrifice two things: your freedom to open and use additional credit lines and, in many cases, your credit profile. The service usually asks consumers to make a single monthly payment, which it uses to pay creditors.

7. File bankruptcy. Truly a last resort, bankruptcy destroys a credit rating for many years, and a bankruptcy judgment is more difficult to obtain than it used to be. Even with a Chapter 13 bankruptcy, consumers must still pay at least of portion of their debts on a repayment plan.

If credit is good:
Those who know they are in too deep, but haven't started hearing from creditors and are able to make at least minimum payments on debt, have a few additional options:

1. Consolidate via credit cards. Consider taking advantage of a lower-interest transfer offer. However, bear in mind several factors: (1) Read the fine print to calculate the balance-transfer fee. (2) Choose a card without an annual fee. (3) Be confident you can pay off the balance before any introductory low interest rate expires. (4) After the transfer, stop charging -- you'll just rack up more debt. Also realize that continually opening new cards and closing older ones hurts a credit rating.

2. Take out a personal or signature loan. Weigh this option carefully. The interest rate on this type of loan may not be significantly lower than what you're already paying.

3. Borrow against a home. If your credit is good enough, you might be able to take out a home equity loan or line of credit to pay off other debts, although the recent subprime mortgage environment has made lenders far more skittish than they were even just a year ago. Those who qualify can save a significant amount in interest by transferring high-interest debt to a low-interest mortgage payment. However, using a house to pay off unsecured debt can be extremely risky. Make sure to leave some financial breathing room so that if something unexpected does happen, you will not risk the home.

"Anyone can get into debt over his or her head," Stroh said. "But the way a person handles debt sets the stage for the future. Whether your credit is good or bad, work to improve it by making the right choices."

Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. The company blogs about consumer finance issues at http://www.bills.com/blog. Since 2002, Bills.com has served more than 30,000 customers nationwide while managing more than $1 billion in consumer debt. Bills.com is a division of Freedom Financial Network, LLC, whose co-founders and CEOs, Andrew Housser and Brad Stroh, have been named Northern California finalists in Ernst & Young's Entrepreneur of the Year Awards.

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