I need help lowering my monthly credit card payments. The minimum payments have crept up lately and I will soon be facing a drop in my income due to a job change. I want to do something before I have to start missing payments. I need these payments lowered, but when I contacted the credit card companies, they said they couldn't help. I don't know what to do. I have about $40,000 in credit cards with monthly minimums arond $900. I don't have enough home equity to get a loan (we just bought our house last October). The bank wouldn't give us an unsecured loan to pay the cards off because the amount exceeds 20% of our yearly income. My credit score is excellent right now and I'd like to keep it that way. Any advice????
Over the past couple of years, many credit card banks have increased the required minimum payments on their accounts based on a recommendation made by the U.S. Office of the Comptroller of Currency (the target monthly amount increased from about 2% of balance owed to approximately 4% of credit card debt owed). The increase in minimum payments was designed to save cardholders money in interest payments by forcing them to pay off their balances faster. While this policy change will benefit consumers who are opening new accounts, it has caused major problems for consumers with outstanding balances who were already struggling to meet their minimum credit card payments. While there are several ways to address your credit card debt, your credit score is likely to suffer unless you are able to continue making your regular payments.
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One option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would disribute the funds to your creditors, based on the new payment amounts. One benefit of CCCS is that it should not seriously damage your credit score. However, it may have a negative impact on your ability to obtain a loan despite your good credit score, as many lenders view enrollment in a CCCS program the same as filing Chapter 13 bankruptcy. So, you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. There are a few additional drawbacks to CCCS. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. Many consumers prefer debt settlement programs to CCCS, as debt settlement programs tend to be significantly shorter than CCCS plans, and the monthly payments in debt settlement are usually lower. There is one major drawback to debt settlement programs, though?they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.
If you own a home, a secured debt consolidation loan may be right for you. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount. However, be careful before you borrow money against your home to pay off your credit card debt; you are converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured debt. However, secured debt consolidation loans work for many people, so this is an option to consider carefully?the Bills.com Savings Center is a great resource to help you find a lender for this type of loan.
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Depending on your income and amount of debt, one of the options I have described above may be able to help you. I encourage you to explore the Bills.com website, /debthelp/ to read more about these and other options available to you.
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