There are different OPTIONS to solve credit card debt PROBLEMS.
Your financial situation is different from someone else. The credit card debt relief service that works for someone may not be the best choice for someone else. You should take the time to understand all the debt relief options available to you to find the best solution for your needs and goals.
Credit Card Debt Relief Solutions By Problem Severity
Credit Card Debt Relief Solution - Credit Counseling
Credit Counseling is a process by a third-party company (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.It may be determined that you would benefit by enrolling in a Debt Management Program (DMP). A DMP is administered by the third-party company 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 your credit card payment schedule, reduction in interest charges, removal of late payment fees, etc.
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
Credit Card Debt Relief Solution - Debt 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 such as your credit cards and unsecured personal loans. The potential advantages of this credit card debt relief are: simplicity, lower interest rate, lower monthly payments and loan costs. You will have limited access to using credit cards during the term of the loan.It is important to remember that your are not reducing your credit card debt. Instead you are simply transferring 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.
The debt consolidation loan can have payment terms from 36-60 months, lowering your monthly payment and helping your cash flow. However this may result in higher overall interest costs versus what your are currently paying. To be successful you must have restraint and discipline.
We tend to compartmentalize our debt: categorizing our mortgage debt as one kind of debt, installment loans as another, and credit cards as still another… The fact is that debt is debt. All of it is owed and has to be paid back!
Credit Card Debt Relief Solution - Debt Settlement
Debt Settlement (also known 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.
However 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.
Credit Card Debt Relief Solution - Debt Bankruptcy
Bankruptcy is the ultimate debt relief option for eliminating your credit card debt. This is chosen when you are financially drowning in debt and only when other debt relief options will not work for you. This is the nuclear option.
Bankruptcy is a Federal legal process which promises you a fresh financial start by discharging (wiping out), with some exceptions, your 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. 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. 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.