Debt Relief Credit Card Options
Debt relief credit card options allow you to take control of the silent killer of credit card debt. Your consumer credit card is fundamentally an unsecured personal loan that needs to be paid off at the end of each billing cycle. If not paid off in full, this results in an every expanding amount of revolving personal debt that is subject to high interest rates ranging from 12 to 25%. Over time, almost invisibly, your credit card debt increases as you accumulate thousands of dollars in revolving interest payments. Unfortunately, you are not alone. More than 55% of all Americans do not pay all their credit card debt per month. To help you take control of this silent killer, we provide you an overiew of debt relief credit card options.
Debt Relief Credit Card - Counseling
Credit Counseling is a process by a neutral third-party agency (often non-profit) to provide you information, guidance and support on budgeting, credit, money and debt management. The goal of credit counseling is to help you improve your financial situation by avoiding excessive debt that you cannot comfortably maintain.
After your initial consultation and credit review, the credit counselor will offer you recommendations on debt relief credit card options. These can include: Balance Transfers, Debt Management Program and other options.
For those with good credit, a balance transfer credit card offers, for an introductory period, an extra-low (teaser) annual percentage rate (APR), often at 0%. You transfer your high-interest debt balances from one or more credit cards to this lower interest rate card. With these transfers there are associated fees and some restrictions.
This strategy allows you to apply more of your payments to the principal balance each month rather than interest charges, which help you eliminate your card debt faster. However, after the introductory period, the interest rate will rise to its normal level, which may be high. If you have the discipline to pay down your outstanding credit card debt during the introductory period and not add to it, this may be your debt relief solution.
After review of your debts, credit, and budget, it may be determined that you would benefit by enrolling in a Debt Management Program (DMP). A DMP is administered by the third-party agency for a nominal fee that negotiates and coordinates payments with your creditors. You and a debt counselor determine a monthly payment plan that works with your budget. The debt counselor contacts your credit card lenders and other creditors to negotiate:
- Adjustments in the credit card payment schedules
- Reduce interest charges on your credit card debt.
- Stop penalties and fees being added by your credit card lenders if behind on payments.
- Once a credit card account is paid off, it is marked as “paid in full”, improving your credit history.
This strategy does not reduce your accumulated credit card debt. Rather it does offer consistency of payment and applying more of your payments to the principal balance each month. With negotiated lower interest rates and reduced or waived penalty fees, you are more likely to pay off your credit card debt sooner. However you will not have access to the credit cards you have enrolled in the DMP.
Debt Relief Credit Card - Consolidation
Debt Consolidation is a process of taking out a personal loan for the specific purpose of combining multiple debts into a single monthly payment. The funds from the consolidation loan are normally used to pay off debts of the same type. An example would be your credit cards and unsecured personal loans.
The potential advantages of this debt relief credit card option are:
- Simplicity | Only One Payment Required
- Generally A Lower Interest Rate | Saves Money Servicing Consolidated Debt
- Fixed Monthly Payments | Easier To Budget
- Lower Monthly Payments Depending Upon Loan Terms| Improves Cash Flow
- Lower Interest Costs Depending Upon Loan Terms | Pay Off Debt Faster
You should only consider this debt relief credit card option when Credit Counseling will not work. This would apply if your unconsolidated credit cards debts ($25K+) are much higher than would be covered by a simple balance transfer option.
You will have limited access to using credit cards during the term of the loan. You are simply transferring a series of personal loans from credit card issuers to a larger personal loan from a financial institution. It is still debt that you need to pay off.
As with any loan there are lender fees that will add to your existing credit card debt. If your credit score is poor or your Debt-to-Income is too high (41%+), the lender may not offer you a low enough interest rate on the loan to reduce your overall debt servicing costs.
The debt consolidation loan can have payment terms from 36-60 months, lowering your monthly payment and helping your cashflow. However this may result in higher overall interest costs versus what your are currently paying. You will be increasing your amount of personal debt which is not a viable form of debt relief.
To be successful you must have restraint and discipline.
Debt Relief Credit Card - Settlement
Debt Settlement (also know as debt negotiation or debt forgiveness) is a process by which a debtor negotiates a payoff amount for less than the total balance owed on a debt. You pay back a percentage of what you owe on your credit cards (unsecured debt) and in return the lender discharges the remaining balance. The lower negotiated debt pay off amount is normally paid in one lump sum, but may also be paid off over time.
If you are significantly behind in your credit card payments (three to six months) and have a financial hardship that will prevent you from paying your debts, this debt relief credit card option should be considered.
Your credit card lender is required to charge off the loss, normally after six months, so has an incentive to negotiate. If your credit card account has been sold to a third-party collection agency, a lower settlement amount is likely.
This option will hurt your credit history (if it has not already occurred due to late payments), you may have to pay taxes on the debt forgiven by the lender and you will need to have a plan to recover from this decision.
Experience, time and cost are the main distinctions between debt relief credit card debt settlement negotiation through a third-party company and doing it yourself. There is also the issue of how one’s personality will deal with the stress of negotiating with creditors and bill collectors.
Your credit card lenders understand that your long-term financial hardship is the reason you are pursuing debt settlement. If not successful, you will be forced to file for Chapter 7 bankruptcy. If this happens your lender understands that no payment will be received on the credit card debt.
Debt Relief Credit Card - Bankruptcy
The Nuclear Option
Bankruptcy is the ultimate debt relief option for eliminating your credit card debt. This is chosen when you are financially drowning and only when other debt relief options will not work for you.
It is a Federal legal process which promises a fresh financial start to the individual by eliminating, with some exceptions, his/her outstanding debts. But it has serious consequences, including long-term damage to your credit profile. However the process is relatively quick and inexpensive, allowing you to restart your financial life.
Chapter 7 is the basic liquidation bankruptcy for individuals and is the most popular. It’s goal is to liquidate all of the your assets to pay off the creditors. It does not take into consideration your anticipated future earnings. It simply looks at what assets you have available right now to make your creditors whole.
You will need to be prepared to lose property and/or be subject to liens and mortgages. A court appointed bankruptcy trustee manages the liquidation of all your nonexempt assets under law-mandated procedures and use the proceeds to pay your creditors back. Your credit card lenders are normally near end of the queue for payoffs, if any.
If you do not qualify to file Chapter 7 bankruptcy, you will be directed to Chapter 13. This bankruptcy is different in that the court-approved plan requires you to repay all or part of your credit card and other debts over a period of three to five years. This debt relief credit card option is effectively a court directed Debt Management Program, that reflects your anticipated future earnings. Because it does not require liquidating all assets, you may be able to keep your home, as long as the court mandated payments are continued.
Debt relief credit card options exist to allow you to manage your use of personal credit. Each debt relief option is more drastic in it’s treatment to help you take control of the silent killer of credit card debt. As a first step, put away the credit cards and limit your spending habits to your income.
An overview of the debt relief credit card options is presented. This includes 1) Credit Card Credit Counseling?; 2) Credit Card Debt Consolidation; 3) Credit Card Debt Settlement; and 4) Credit Card Bankruptcy.
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