Many Americans are struggling with credit card debt, even those who try to be responsible. The issue is partly due to the fact that the rates on credit cards are at an all-time high right now. For example, the average rate for a retail card is 30% while the average rate for a credit card is 23%. This has led to a rise in the amount of debt on credit cards, which now stands at $1.17 trillion .
This means that the average cardholder is owing almost $8,000 in credit card debt. The growing debt load has caused an increase in delinquencies, and defaults on credit cards . It’s important to manage your credit card balances effectively to maintain financial stability. If you are struggling to pay off your debt, you may want to consider having some of your credit card debt forgiven.
If you are interested in debt forgiveness you want to get your card issuers to agree to settle the debt for a lower amount than you owe and the rest will be “forgiven”. As with any financial strategy some credit card debt-forgiveness methods are better than others. Which ones are the best to pursue and which should you avoid. Below, we’ll explain.
Get help to eliminate your credit card debt now .
2 strategies for reducing credit card debt
These strategies may be the best for you if you want to pursue debt relief.
Sign up for a program of debt forgiveness
These companies negotiate with creditors on your behalf to settle debts for less than what you owe. They often achieve settlements span class=”link”>a data-invalid-url-rewrittenhttp=”” href=”https://www.cbsnews.com/news/what’s the lowest amount debt collectors will settle for? What experts say/” target=”_blank>that are 30% to 50% lower/a>/span> (or more) than These companies negotiate on your behalf with creditors to settle debts at a lower amount than you owe. Settlements are often 30% to 50% less than the original balance. This process usually takes 24 to 48 months. You make monthly deposits to a special account to accumulate funds. This strategy has many benefits, including:
- Expertise in professional negotiation and relationships with creditors
- There is a significant potential for debt reduction
- Single monthly payment
- Support for the entire debt resolution process
There are other factors to consider before enrolling.
- The fee is typically 15% to 25% of your debt.
- Your credit score is likely to decrease during the program
- Creditors can still try to collect until the settlement is reached
- Forgiven debt may have tax implications
- This is usually the best option for people with unsecured debts of $10,000 or higher
Find out today how to get rid of your credit card debt.
If your debts are truly overwhelming, you may want to consider bankruptcy
When credit card debt is unmanageable, and no other option is viable, can offer a fresh start. Chapter 7 bankruptcy will eliminate the majority of unsecured debts in three to six month, while Chapter 13 offers a repayment plan that spans three to five year. This option is particularly helpful when you have a high debt-to income ratio or if you are facing aggressive collections actions. This strategy has several key advantages.
- Legal protection against creditor actions
- Most unsecured debts could be eliminated
- Stop the collection calls and lawsuits
- You can keep certain assets and eliminate debt.
The following are important factors to consider:
- The impact of your credit score can be significant for a long time (from seven to ten years).
- This may impact employment and housing opportunities
- Certain debts are not dischargeable
- The court and legal fees are included
Avoid by using these 2 strategies for reducing credit card debt.
If you are planning to use this method of debt relief in the near future, you might want to avoid using these strategies.
Debt forgiveness negotiation
negotiating with creditors directly might seem like an effective way to save money, but it is risky and can be less effective than working alongside professionals with experience in this type of deal. You lack the expertise, leverage and relationships with creditors that debt settlement firms have. You may want to avoid using this option for the following reasons:
- Negotiation with amateurs has lower success rates than professional negotiations
- Miscommunications or misunderstandings of legal terms are possible
- Limitation of leverage with creditors
- Documentation is a lengthy and time-consuming process.
- Settlement agreements can be costly if they contain mistakes
- Risk of lawsuits by creditors during negotiations
How to file for bankruptcy when you have manageable debt
When your debt can still be managed by other means, filing for bankruptcy is a drastic move that could have long-lasting effects. If you are able to afford to pay off your debts in a structured way or have assets that you wish to protect, this approach is not for you. If your debts are still manageable, you should not use this method.
- Credit history damage that is unnecessary
- Credit cards lost and difficulties obtaining new credit
- Impact on future employment prospects
- Loss of assets that should have been protected
The Bottom Line HTML0
It is important to match the right solution with your financial situation. A debt forgiveness program offered by a reputable company can be the best option for those who are struggling with credit card debt, but still able to make regular payments. Bankruptcy can be a good option for those who are facing a truly overwhelming amount of debt and have no realistic way to repay it.
Be sure to weigh the long-term consequences of each debt solution strategy before choosing one. Also, remember that action is key. You may have fewer options if you delay addressing credit card debt. Do your research and select the strategy best suited to your financial situation and goals, as well as your ability to commit long-term.
