Managing Debt Overload Job #1 In 2009

In the past two years, a series of events has brought the issue of consumer debt to the forefront. In 2007, sub-prime mortgages crashed onto the scene as the number of foreclosures began to rise. In late 2007 and early 2008, the secondary securities markets, where mortgages and other loans were bundled and sold, fell apart, putting a chokehold on new credit. Borrowing virtually ceased, and at one point, banks would not lend cash to each other, even overnight.

In July, major financial institutions began to give indications that the "liquidity crisis" was negatively impacting their ability to do business. Among hastily arranged mergers and takeovers, a few large banks collapsed into FDIC receivership. By the end of the year, the federal government was offering hundreds of billions in bailout dollars to banks, insurance companies and investment firms, while at the same time, raking auto industry executives over the coals for what seemed like a paltry $20 billion.

Meanwhile, ordinary consumers, who ultimately pay the bills for all of this, are awash in mounting credit card debts, home mortgages gone awry, jaw-dropping medical bills, and declining investment values in residential real estate, money-market funds, stocks and just about everything else.

For some consumers whose unsecured debts exceed $10,000, there are only a few options available. For those who want to avoid bankruptcy, debt settlement and loan modifications rank among the most promising tools. While debt settlement is getting a bad name compliments of a few bad actors in the field, many legitimate debt settlement companies exist and are helping consumers make the best of a bad situation without turning to the bankruptcy courts for assistance. Expect regulatory changes for debt settlement companies in 2009 or 2010, but for legitimate organizations, these regulations will strengthen and improve the industry. Congress should focus on those changes to the financial industry that will assist and protect consumers since they are ultimately the ones who will foot the bill for the corporate bailouts that Washington is currently underwriting.