Credit Card Debt Relief
Learn your options and the consequences
You’re not making any progress on your debts regardless of what you do? If this is the case, you could be dealing with massive debt. To get rid of the financial burden, take a look at the options for credit card debt relief. These tools can alter your debt’s terms or amount to help you be back on the road faster.
However, credit card debt relief programs aren’t the best solution for everyone. Moreover, it is important to know the potential consequences.
Credit card debt relief can involve slicing off the debt in bankruptcy, making modifications to your interest rate and payment schedule to make your payments lower, or convincing creditors to accept less than the entire amount due.
When should you seek debt relief?
Think about the possibility of bankruptcy, debt management, or debt settlement when one of these applies:
- There’s no chance of resolving your debts unsecured (credit cards or personal loans, medical bills) within the next five years, even if you adopt drastic steps to cut down on expenses.
- The sum of your unpaid debt must be at least half of your total income.
However, it is possible to pay off your unpaid debts in five years. Consider doing it yourself. It could comprise a combination of debt consolidation, appeals to creditors, and more strict budgeting.
Beware: Debt relief may cause problems.
The sector of debt relief includes fraudsters who want to take whatever money you have. Many who sign up for the program for debt relief fail to follow through with the program. It is possible to end up having debts that are larger than the ones you had when you first started.
The credit card debt relief program could offer you a fresh start or the breathing space you’ll need to get accurate results.
Make sure you are aware of -and verify these points before signing any contract:
- What do you need to know to be qualified?
- Are there fees you’ll have to pay?
- What creditors are getting paid, and what is the amount? If your debt is placed in collections, ensure you know who the debt owner is and send the payments to the correct agency.
- The tax consequences.
Relieving debts through bankruptcy
It’s not worth entering the debt settlement process or entering into a debt management plan if not in a position to meet the terms agreed upon.
We suggest speaking with a bankruptcy lawyer before deciding to explore any credit card debt relief strategies. Consultations are usually free. If you’re not eligible, then you’re free to switch to different alternatives.
The most commonly used type in bankruptcy, Chapter 7 liquidation, will erase most credit cards, unsecured medical debt, and personal loans. It is possible to complete the process within three or four months when you are eligible.
You should be aware of:
- It will not erase taxes owed and child support obligation, and student loan debt is unlikely to be forgiven.
- It can sever it will sever your credit score and will remain visible on the credit report for as long asten0 years, even after you rebuild your credit history. This isn’t a small matter since a poor credit history can impact the possibility of applying for specific jobs, your odds of getting a lease on an apartment, and the amount you have to pay for insurance on your car. If the credit is already in a bad state, the bankruptcy process could enable you to repair your credit more quickly than continuing to attempt to pay it back. (Learn more about what happens when filing bankruptcy might be the most appropriate alternative.)
- If you’ve used a co-signer and filed for bankruptcy, it makes the co-signer accountable for the amount owed.
- If the debts keep piling up, you won’t be able to make another Chapter 7 bankruptcy for the next eight years.
- It might not be the best option for you if you have to sell the property you would like to keep. The rules are different for each state. Most of the time, certain properties are exempt from bankruptcy, including motor vehicles with a particular value and apart from the home’s equity. However, it is common to have to surrender a second vehicle or truck and family heritage items, vacation homes, and any other valuable collection.
- It’s possible that it’s not needed if you’re “judgment evidence,” which means you don’t have any income or property that creditors can pursue. However, creditors can still be able to sue you and receive a judgment, but they won’t be legally able to get their money back.
Not all people with a large amount of debt can qualify for it. If your earnings are above the median of your state and the size of your family or property, you’d like to avoid foreclosure. You may have to make an application to file Chapter 13 bankruptcy.
is an option for a three or five-year repayment plan that the court approves based on your earnings and debts. If you can adhere to the plan for the entire term, any remaining debts that are not discharged are wiped out.
This process will be more time-consuming than the Chapter 7 bankruptcy, but if you’re capable of making the payments (a large majority don’t), you are eligible to keep your home. Chapter 13 bankruptcy stays on your credit report for seven years following the date of filing.
Assistance through debt management programs
A debt management program lets you pay your debts that are not secured, typically including credit cards in full and often with lower interest rates or reduced fees.
The plan requires you to make one monthly payment to the credit counseling service and distribute it to your creditors. Credit counselors, as well as credit cards, have long-standing agreements that help customers with debt management.
Your credit account will be shut down, and generally speaking, you’ll need to be with no credit cards until you finish the plan. (Many individuals don’t complete the procedure.)
The plans for managing debt aren’t a factor in the credit scores; however, closing accounts can harm your score. After you’ve completed your plan, it is possible to apply for credit in the future.
Low payments could force you off the plan, but. It’s essential to select an accredited agency with the National Foundation for Credit Counseling or the Financial Counseling Association of America. However, you must ensure that you know the costs and other options you could have to deal with debt.
Relieved through debt settlement
Settlement of debt is a game of money of chicken. We do not advocate it for the majority of individuals. It is generally a more viable option. Debt settlement is the last option for those facing massive debt but isn’t eligible for bankruptcy.
The companies that offer debt settlement typically request you to stop paying your creditors and instead deposit the money into an account they manage. Every creditor is approached because the money is accumulated in your account, and you become further behind in payments.
Fear of not getting anything, even a single cent, could cause the lender to offer a lesser lump sum and then agree not to take the remainder.
Paying your bills late could cause collections calls, penalty charges, and even legal actions against you. Debt settlement will not stop any of that while you’re in the process of negotiating.
It’s best to anticipate 4 to 6 months before the offers for payment start. Depending on the amount your debt is, this process may take several years.
In addition, the continual payment lateness further erodes your credit score.
There is also the possibility of tax charges on forgiven funds (which the IRS can count as income). Legal actions can result in tax liens on property and wage garnishments.
You could try to pay off a debt by yourself or engage an expert. The industry of debt settlement is rife with scammers. However, it is recommended that the Consumer Financial Protection Bureau, the National Consumer Law Center, and the Federal Trade Commission caution consumers with the most severe of terms.
A few of them also claim to be debt consolidation firms. They’re not. It is something that you can handle yourself and will not cause damage to your credit.
Do-it-yourself debt relief
There’s no reason to think that you shouldn’t take advantage of any debt relief options and create your debt relief plan.
You can follow the same steps that credit counselors can do in debt management plans. Contact your creditors and provide a reason for your fall and what concessions you’ll require to get caught up. The majority of credit card companies offer special programs for hardships, and they might be willing to cut the interest rate and eliminate charges.
It is also possible to educate yourself on debt settlement and then reach an agreement with the creditors. (Learn how to negotiate the debt settlement by yourself.)
If the debt you have isn’t insurmountable, alternative debt-payoff strategies could be an option. For instance, if the credit scores are still in good shape, getting a credit card with a zero percent balance transfer rate could give you a bit of breathing space. Also, you could get a loan to consolidate debt with a lower interest rate.
These options shouldn’t harm your credit in the long run; as long as you keep making the required payments and pay them on time, your credit score should improve.
If you choose to do this, however, it’s crucial to create a plan to prevent increasing your credit cards debt over and over. It can also be challenging to get an additional loan or card when you’re deeply in debt. This typically causes unpaid bills or excessive debts that can hurt the credit standing.
What should you avoid doing
Sometimes, debts become overwhelming and come incredibly fast — health crisis, unemployment, or natural catastrophe. Maybe it was in small increments that now collection agencies and creditors have you pressed to pay, but you can’t.
If you’re struggling with debt, There are some things incredibly fast
Do not pay a secured loan (like car loans) late to pay for unsecured debt (like hospital bills, for example, or credit cards). It could result in the loss of collateral to secure the debt (your vehicle).
Do not borrow against the equity of your home. You’re putting your house at risk of being foreclosed upon, and you could be turning the debt you are unable to pay off and could be eliminated in bankruptcy to secured loans which aren’t.
Do not withdraw funds from your retirement savings to repay debts you aren’t able to pay. This is suicide financially.
Consider avoiding borrowing money from retirement accounts at work and. If you are fired, the loans could become accidental withdrawals, resulting in taxes that are not the best thing you’ll need.
Make your decisions based on the most threatening collectors to you and lead to conclusions that are not the best for you. Instead, you should study your options and pick the most appropriate option to suit your needs.
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