Credit card debt can get out of hand for a variety of reasons. Moreover, regaining control of it can be extremely difficult. Fortunately, there are a number of smart credit card debt relief options you can leverage, even if your credit score and/or your income level limit your choices.
Your first step toward out-of-control-debt eradication should always be to seek out a credit counselor to help you decide upon the most effective approach. In addition to providing you with a host of free educational materials and workshops, credit counselors can help you gain a thorough understanding of the ways of consumer credit and budgeting, along with money and debt management.
Most provide in-person counseling on a non-profit basis. They’ll go over your finances with you to help you come up with a workable debt eradication strategy. Keep in mind though, non-profit and free can be two separate things. You’ll sometimes be asked to pay for a counselor’s time.
Credit counselors will often recommend a debt management program if your problem is too much debt — or you have a demonstrated inability to pay it on your own.
Rather than paying your bills directly to creditors, you’ll deposit money with the management organization each month. Your representative will negotiate a revised payment schedule. They will also try to get you reduced fees and interest payments. The deposits will be used to satisfy your obligations according to the newly agreed-upon terms.
Completion could take up to 48 months or more, depending upon your situation. During that time, you’ll agree to take on no new credit accounts and maybe even close some of the ones you currently have. You’ll also agree to compensate the manager for their efforts.
Also known as debt negotiation, settlement and management do have some common elements. An agent will try to negotiate better terms on your behalf and pay your bills from cash you deposit in both instances. However, the settlement agent will push for forgiveness of part of the principal balance in exchange for timely payment of the agreed-upon settlement amount.
This form of debt relief can be highly effective, although it does have some consequences. Your credit score will drop if you stop paying your lenders monthly until you have accumulated enough to pay them off altogether. The amounts they forgive will be reported to the IRS, where they’ll be treated as taxable income.
However, you will often pay less than you currently owe to put those debts behind you if your agent can negotiate settlements on your behalf — even with the associated fees.
While it might be difficult to think of this as a credit card debt relief option, it can be highly effective at accomplishing just that. On the other hand, its consequences are the most severe of all of the approaches listed here. Notation of the filing will stay on your credit report for seven or 10 years, depending on the type. Meanwhile, all of the other forms of debt relief listed here will show up on your reports for seven or less.
There are two primary forms of personal bankruptcy, Chapter 13 and Chapter 7. Each treats your assets a bit differently, so it’s important to understand the difference between them before making the choice. You’ll also encounter filing fees as well as attorney’s costs.
Each of these smart credit card debt relief options has advantages, disadvantages, and fees to consider. The Federal Trade Commission offers a wealth of information to help you further understand each of them so you can make the best decision for your circumstances.