Types of Credit Card Debt Relief

Updated: Mar 4, 2015

Highlights

  • Credit Card Debt Relief takes many different forms.
  • Balance transfers and loans can alleviate interest and payment concerns.
  • Debt Settlement and Credit Counseling can help if you have hardship.
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Learn All About the Different Types of Credit Card Debt Relief

Credit card debt relief takes several forms. No one solution is best for everyone. Instead you have to find the credit card debt solution that meets your specific financial situation. Review the following options to help you find the solution that is best .

  • Credit Card Balance Transfer
    A balance transfer is the simplest way to consolidate debts so you can find relief from numerous minimum payments that get you nowhere. If you decide to use a balance transfer, you must commit to paying more than the minimum on the new combined balance. To do this, total up all of the minimum payments on your previous debts. Now add an additional amount, whatever you can free up from your budget. Pay that entire amount to the new balance every month. With determination, you can probably pay off the entire balance before the interest rate offer expires.

    When looking for a balance transfer card, opt for an offer with a 0% interest rate and zero transfer fees. If you can't find an offer that doesn't charge fees or interest, look for a low balance transfer fee with a cap of $50-$75. You should also consider the applicable rate after the offer period ends. Look for a rate below 10% just in case you have a small amount of debt remaining.
     
  • Credit Card Debt Consolidation
    If you owe more debt than you can reasonably pay during the balance transfer offer period, you should consider a debt consolidation loan. These come in two forms: personal and home equity/refinance loans. If you don't own a home or your home doesn't have equity, then you should apply for a personal debt consolidation loan, although they are hard to find and harder to get approved for. Interest rates are higher than home loans, but lower than credit card rates.

    If you qualify for a home equity loan or a mortgage refinance, this is a great way to pay down debt. In addition to having a lower interest rate, the interest may be tax deductible. You can use the additional tax savings to pay down debt.

    Many people are able to pay down debt more quickly when they consolidate it; however some create new credit card debt at the same time. Transferring the debt is not an excuse to run up more credit card debt. Instead, apply your old credit card payments to the new loan and commit to reducing your expenses until it's paid off.
     
  • Credit Counseling
    If you need help paying off your credit card debts and struggle a bit with monthly payments, contact a credit counseling service (CCCS). The CCCS service will review your debts, income, and expenses, and work with you to create a payment plan that is usually called a Debt Management Plan (DMP).  The service works with your creditors to reduce your interest rates and set a fixed monthly payment. Once your debts are enrolled in the program, you no longer have access to the cards, which prevents you from creating new debt. In addition, you make a single monthly payment to the service, which then distributes it to your creditors as agreed.  Credit counseling does not impact your FICO credit score, but many lenders will perceive it similar to a bankruptcy.
     
  • Credit Card Debt Settlement
    If you owe significantly more than you can pay, and can't reduce expenses or increase your income any further, then you may want to explore debt settlement. Also called debt negotiation, debt settlement actually reduces your total balance due. The service contacts your creditors and works with you to save funds that will be allocated to future negotiated settlements on your balances.  You may either be required to make a lump sum payment or monthly settlement payments. In most cases, debts can be reduced by around half, but results vary greatly. Before choosing this option, remember that debt settlement will seriously damage your credit and you may owe taxes on the unpaid amount.
     
  • Bankruptcy
    Bankruptcy should be your last resort. Due to 2005 revisions in bankruptcy law, it's now more difficult to eliminate credit card debts in bankruptcy. You're more likely to be placed into a court-mandated payment plan. However, if you have other debts like high medical bills that prevent you from paying your credit card bills, bankruptcy may be an option.

    Before choosing any one credit card debt relief option, consider the impact of all of the options on your budget and financial future. The best solution is to reduce expenses and commit to paying off the full debt, but if you cannot afford your debts then consider the other debt options if paying your debts is simply impossible.

VIDEO: Credit Card Debt Relief Options

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