Credit Card Debt Settlement
Credit card debt settlement is a negotiation process where a creditor tries to convince a lender to accept a sum that is less than the full debt owed to satisfy as repayment. This type of credit card debt relief can expunge between 50-80% of the total debt owed, but can be difficult to work out on your own & may not always be the best option for reducing your credit card debt.
Credit card companies want to be paid back what is owed in full. Part of your arrangement when making use of a credit card is that you’ll pay back all the fees you’ve built up plus any interest that has accrued. Often bank card issuers recognize that getting payment for all the credit extended to a debtor is unrealistic and unlikely to happen. In an effort to recover the funds they may chase you via a collections agency or get a legal representative, but often it isn’t worth the cost.
The majority of credit card debt is unsecured, which means that your creditors have nothing to collect on, no house to repossess or wages to garnish, when the debt goes unpaid. Financial institutions also understand that if you apply for personal bankruptcy, it’s very possible they may never ever see a single dime of the debt repaid. When confronted with the possibility of obtaining no repayment from you at all, your credit card company may want to work out a deal with you for less than the full amount. Due to the recession and the overwhelming number of people in debt, creditors are left with little choice but to negotiate debt settlement deals. One way to negotiate these deals is through the utilization of a credit card debt relief program.
Types of Credit Card Debt Relief
There are a number of different methods for getting relief from credit card debt.
If you have access to a decent chunk of cash, such as from an inheritance, you can attempt to discuss a settlement for less than the full amount owed. Typically, the debt can be broken up into 3 segments.
With a lump-sum settlement, it’s important that both you and your lender are clear that the agreed-upon amount will satisfy the costs of the debt and to get this agreement in writing. It’s also important to understand that paying less than what you owe can negatively influence your credit score depending on how the repayment is reported to the major credit bureaus.
If a loan provider forgives $900 worth of the principal amount of your debt, it must report that amount to the IRS. For example, a lump sum payment of $2,500 to work out a $4,500 credit card costs will likely mean that you’ll have to pay taxes on an additional $2,000 in earnings next year.
With this type of settlement, the bank might eliminate or reduce your minimum monthly payments, rate of interest, and may even stop assessing late charges or over-limit fees. You may also be able to ask the lender to forgive previous fees to lower the balance even further.
The downside to getting this type of credit card debt settlement is that your credit limit will likely be cut off, so you will not have the ability to use your card(s) from this lender. However, the overall impact on your credit score will mostly rely on how the lender reports the repayment to the credit bureaus.
Looking for a debt relief expert to help you workout an arrangement? Contact us at New Era Debt Solutions today.
If your economic problem is only short-lived, such as a major medical occasion that places you unemployed for a couple of months, a forbearance program, which is similar to a long-term workout arrangement, may the right form of debt relief for you. With this type of credit card debt relief program, the bank card issuer may get rid of or lower your interest rates and place a halt on late charges. The card company may also allow you to avoid settling the credit card debt until your financial life is back on track.
Forbearance programs offer a brief break from complete payments, not forgiveness of any debt. A forbearance is for momentary economic issues when you know your finances and also revenue will certainly return to regular quickly, Cunningham claims. “It’s meant to be a bridge from monetary stress and anxiety to financial stability,” she claims. Likewise: You will still pay every penny you obtained, as well as possibly a lot more.
Credit Card Debt Management Plan
If you don’t intend to negotiate with your creditors yourself, you can sign up for a credit card debt management plan. A financial counselor will meet with you to discuss your particular circumstance and arrange repayment to each your creditors involved. The counselor will communicate with the lender to reorganize your debt so it’s cost effective & more affordable. Commonly, the counselor can work out to decrease your rate of interest, minimize or drop additional fees and reduced your monthly payments.
This form of credit card debt relief often requires that you pay the entire amount owed. The other downside is that while being enrolled in a debt management plan by itself will not harm your credit rating, shutting down credit card accounts is likely to cause at least some injury to your credit score.
Credit Card Debt Settlement Program
In a credit card debt settlement, you or your debt settlement company negotiates with the lender to agree upon a settlement, which is often less than what is owed, to repay the debt. This form of relief from credit card debt is less harmful to your credit score than bankruptcy & can offer some immediate alleviation from financial pressure.
The biggest risk with this form of debt relief is that deciding to end payments on your debts can potentially do considerable damage to your credit history, but paying a percentage of what you owe is far better than paying absolutely nothing.
Alternatives to Credit Card Debt Settlement
How do you get credit card debt relief? For many, the answer is credit card debt settlement. But is that the best option for relieving credit card debt? It’s important to review all of your options and make the best decision based on your financial reality. Finding the right credit card debt solution that matches the commitment you are able to make can lead to less stress and overall debt.
All of these options listed below do bring credit card debt relief but some may have quite a few more pitfalls than credit card debt settlement.
- Debt consolidation loans that are not themselves tied to credit cards make sense for some. But typically, in order to get a decent interest rate, the loan would need to be secured. Low interest unsecured credit accounts do exist, but are only offered to people without credit or income issues. Many people consider consolidation loans to be the worst way to get rid of credit card debts. Why? Because although the payments may be lower, the loan would be stretched over years and the eventual money paid for the original debt will be quite a lot higher.
- Every borrower knows that the last and worst option for eliminating credit card debt is Chapter 7 bankruptcy protection. The 2005 congressional alteration of the United States bankruptcy code makes this option even less appealing than it previously was. The Internal Revenue Service was heavily involved in the passage of this legislation, so you can be sure it isn’t meant to benefit the debtor.
- Debt settlement may seem similar to Consumer Credit Counseling, but the differences between these two options are very significant. The companies that work on debt settlement actually work on behalf of the debtors and not on behalf of the credit card companies. This makes professional credit card debt settlement rise to the top as the most viable option for persons who qualify.
Upon reviewing your options, you may decide that a credit card debt relief program is best obtained through a professional debt settlement company. If you have over $10,000 in unsecured debt, we recommend that you contact us to speak to a debt relief specialist who can help you negotiate a debt settlement deal.