There are any number of reasons why you’ve gotten into debt. Perhaps there was some emergency or other set of circumstances. The important thing is you realize you need professional help. You may want to consider debt relief, which comes in a few forms. To help you, here are smart credit card debt relief options.
What is Debt Relief?
At its essence, debt relief – also known as debt settlement – could mean eliminating your obligation through bankruptcy, gaining modifications to your interest rate or payment schedule, or getting creditors to let you pay less than what you owe to get the debt marked as “settled” on your credit reports.
Who are Good Debt Relief Candidates?
You may want to mull the financial strategy if you don’t see yourself paying off your credit card and other unsecured debt within five years – despite slashing spending to the bone. Also, if your delinquent obligations total at least half of your income, credit card relief may be right for you.
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What About Scammers?
While most debt relief companies are legit, there are some bad apples who seek to exploit your vulnerability as well as your eagerness to shed your financial woes. They may unduly pressure you, make promises or guarantees before even looking into your financial situation, or – a huge red flag – seek payment before doing any work for you. They also usually don’t have memberships with professional organizations such as the American Fair Credit Council or the International Association of Professional Debt Arbitrators.
What About Debt Relief via Bankruptcy?
Let’s first define terms: bankruptcy is a legal process in which individuals – in this case – seek relief from a portion or all their debts.
Chapter 7 is the most common form of bankruptcy. While it can wipe out most delinquent credit card accounts, medical debt, and unsecured personal loans, the filing will dwell on your credit report for up to a decade. Also, depending on your state, you may have to relinquish property, including a second car or vacation home.
With Chapter 13, which stays on your credit report for seven years, the court will craft a three- or five-year repayment plan. If you can hang in there for the entire length of the plan – not a small feat – your debts will be discharged.
What About Debt Relief via Debt Settlement?
With this approach, you’ll hire a company such as Freedom Debt Relief to negotiate with the companies you owe – typically credit card issuers – to see if they’ll permit you to pay less than what you owe to “settle” your accounts.
Rather than pay the companies you owe directly, you’ll put funds monthly into an escrow-like account, and when you have saved enough, your settlement company will begin “talks” with your creditors. Upon each settlement, which you must approve, your creditors will be paid from your account.
Credit counseling is usually offered for free or at low cost by non-profit agencies. These certified counselors can help you create a budget and come up with a plan to stick with it. They can also help with overall financial literacy, and many offer literature and even workshops.
If your situation is on the severe side, the agency may suggest a debt management plan, which the counselor sets up between you and your creditors. You’ll likely have to close your credit accounts while you’re in the plan, though. And if you miss a payment, you’ll get kicked out.
Now that you have a better idea of smart credit card debt relief options, you can choose the strategy that best suits your needs. If you’re using a debt settlement company, just be sure you pick a legit company, and you’ll be just fine.