Tips for Settling Credit Card Debt

If you’re overwhelmed with credit card debt with no end in sight, there are ways to get out of the hole without spending a whole lot of cash. Let’s explore your options.

1. Debt Settlement Firms

Any tips for settling credit card debt must include debt settlement. Usually offered by for-profit companies, such programs entail negotiating with creditors to permit you to settle your obligations for less than the total amount owed.

To make that payment, you are asked to deposit a certain amount of money into an escrow account each month. When there are enough funds in the account, the debt is paid off.

The strategy has risks, including the potential difficulty of depositing funds for 36 months or more. So, before you sign up, carefully run your numbers to see whether you can set aside money for the program’s full term.

2. Watch For Debt Settlement Scams

Some firms offering debt settlement may try to deceive you with promises or “guarantees” to settle your credit card liabilities for pennies on the dollar.

Other firms may fail to explain program risks, including that debt collectors may continue to call you. Instead, look for companies who offer full disclosure and are affiliated with organizations like the American Fair Credit Council.

3. Researching Debt Settlement Companies

Run the company’s name by your state’s attorney general and local consumer protection agency to see whether there have been complaints.

You should also ask your attorney general whether the company you’re interested in is required to be licensed to work in your state and, if so, whether it is. Try these credit card debt relief programs.

4. Disclosure Requirements

Ere you signup for the assistance, the debt support organization must give you information about the program, including price and terms. It must also tell you how long it will likely take – the number of months or years before making an offer to each creditor for a settlement.

If you’re asked to stop paying your creditors directly, the company must alert you to possible negative consequences.

5. Other Debt Relief Options

There are other options for dealing with your debt, including negotiating directly with your creditors, working with a credit counsellor, or bankruptcy.

a. Deal directly with creditors:

Instead of paying a company to represent you to your credit card company, you can handle it yourself for free. Be polite but persistent in explaining your situation. You aim to get a new payment plan that lowers your payments to a level you can manage.

Just know this process requires diligence, patience and steady nerves. You’ll make a lot of calls and talk to many different people before you get there. This is why most people choose to work with a professional.

b. Contact a credit counsellor:

Trained credit counsellors can help you figure out how to manage your money and debts, help you craft a budget, and offer complimentary educational resources and workshops. Note, however, that “nonprofit” status doesn’t necessarily mean that services are accessible or affordable.

c. Consider bankruptcy:

Declaring bankruptcy is fraught with consequences, including seriously damaging your credit. But in some case, the strategy can make sense. If you file under Chapter 13 and have a steady income, you can keep property such as a house or vehicle that you would otherwise likely lose through Chapter 7 bankruptcy.

With Chapter 13, the court approves a repayment plan that allows you to eliminate your debts over three to five years without giving up any property. You still must pay an attorney to handle the process, and you’re required to get credit counselling from a government-approved organization within six months before filing for bankruptcy. However, your credit score will be ruined for at least ten years.

Now that you have solid tips for settling credit card debt and are aware of the various pros and cons, you can assess your situation and choose the right strategy for you.