We\'ve all heard of some people being so over stretched with their credit card usage that they apply for a new one to service their existing credit cards. They can only go so far with this method until the financial institutions refuse them another credit card. In the meantime, the interest they are paying on all of their cards is huge. They pay only the minimum interest, leaving the principal debt often untouched. Additionally, there is still the electricity bill, the mortgage or rent and food bills to pay.
This form of spiraling financial disaster can sometimes lead to bankruptcy and drastic action by creditors in the form of debt collection agencies. Debt collection methods can include seizing goods, cars, and sequestering bank accounts, leaving the debtor with the original debt and no goods. This is never fun.
A credit rating is held by credit rating agencies on every one of us who apply for loans and credit. There are no formulas to calculate your credit rating. Every time you apply for a loan, the lender asks the agency about your credit rating and based on the content of your file, the agency will provide an evaluation report to them about your credit risk.
What to do about it? They should reconsider carefully the option of bankruptcy. Even though there is less social stigma than there used to be, it can cause major problems for obtaining credit in the future. They can easily deal with money collection calls by reporting any harassment to the Office of Fair Trading or similar consumer affairs departments. They need to acknowledge that they are in serious financial trouble and to seek advice to find practical options like a debt consolidation loan.
Debt consolidation will reduce their monthly payments and allow them to pay just one loan and free up some much needed cash for necessities. Above all, they need to decide to take any necessary action before it is too late and they are left homeless and incapable of getting any credit in the future. There is real hope out there.
