Smart Credit Card Debt Relief Options
Once you’ve seriously lost control of your debt, it can be a heck of a rodeo to lasso it back. But all is not lost — there are innovative credit debt relief solutions out there that can get you back in the proverbial saddle.
Whatever caused your debt woes – it could have been illness or the loss of employment, for example – you now need expert guidance. A credit counselor will help you sort out available strategies and emerge with the best one for you.
The agency will also have resources, including educational materials and workshops. And an overarching benefit is that, by the time the process is over, you will have learned the ins and outs of consumer credit, budgeting, and money and debt management.
Although many of these agencies are non-profit, note that “non-profit” and “free” are not always the same thing — you may be asked for a nominal fee.
Get The Credit Managed
If your debt load is too far out there, credit counselors will frequently suggest a debt management program as one of the preferred credit card debt relief options. They’ll also often recommend it if you have shown that you cannot handle the debt yourself.
Instead of paying your creditors directly, how debt management works will put money in a program account monthly. Your representative will attempt to get your payment schedule revised, plus reduced fees and interest payouts.
Your creditors will be paid monthly through your deposits until the debt is cleared, usually in 48 months or more. While that’s going on, you must pledge to open no new credit accounts and may have to close some. You also may have to pay the manager for their service.
This legal strategy – also called debt negotiation – is like debt management. A representative will try to negotiate improved terms for you and pay your bills from your deposit money. The difference is that with the settlement, the representative will attempt to get forgiveness for a portion of the principal in exchange for the compensation at a particular time.
Be mindful that this tack will damage your credit since you will cease paying your creditors until you have amassed enough cash to wipe out the debt. Also, the IRS will treat the amount forgiven as taxable income.
Still, this form of debt relief can be quite effective – you will often shell out less than what you now owe. Your credit can recover over time.
This financial strategy is not typically listed among credit card debt relief options, although it can effectively serve as one. This is THE last-resort option since it comes with severe penalties, including citation on your credit report for seven to 10 years, depending on bankruptcy type.
Make sure you know the difference between the types of personal bankruptcy: Chapter 13 and Chapter 7. And note that you must pay filing fees plus lawyer costs in any case.
Under Chapter 13 bankruptcy, you repay all or part of your debt thru a multi-year repayment plan, which you must submit to the court. Ultimately, the trustee will pay your creditors. Under Chapter 7, you can have all, or some of your obligations discharged after your liquid assets are applied to your debt.
Get professional advice before pursuing this strategy since bankruptcy laws are so complex and can change.