If you feel like you are swimming in an ocean of credit card debt, one of your lifesavers could be debt relief. In 2020, the average American had $ 5,315 in credit card debt Experian Credit Bureau. Of course, your debts are almost certainly higher or lower. But regardless of the amount, you might struggle to pay them off. Debt relief can help here.
What is lending?
Credit forgiveness, also called debt relief, debt settlement, debt relief, or debt relief, refers to the process of having a creditor eliminate some or all of your debts. Debt relief can apply to student loans, federal taxes, credit cards, and other types of debt.
Can credit card debt be waived?
Credit card debt can be forgiven in a number of ways.
Working with a credit card issuer
You can chat with a credit card issuer to discuss the difficulties you are facing paying your bills. Some credit card issuers may be willing to pay off some or all of your debt while others will not pay off a penny of your debt.
This process is known as DIY debt settlement because you do the negotiating yourself.
A credit card issuer will usually not cancel your debt until you are seriously in arrears with payments. In many cases, a card issuer will hand this debt over to a debt collection agency. However, a card issuer could simply skip this step and work with you directly to cancel some or all of your debt.
A credit card issuer may be more inclined to approve a settlement if you’ve lost your job or suffered another financial setback. Many credit card issuers have stepped up their debt relief programs to help people whose finances have suffered during the crisis Covid-19 pandemic.
Remember that if a credit card issuer so decides, forgive only part of your guilt, you need to raise enough cash to cover the outstanding amount.
Working with a debt settlement program
If a credit card issuer does not approve of debt relief, you can try a debt settlement program. It’s worth noting, however, that you typically owe at least $ 10,000 and must be at least six months in arrears with credit card payments to be a strong candidate for debt relief.
Debt settlement programs are typically operated by for-profit companies. A debt settlement company will negotiate on your behalf reduce the amount you owe to a credit card issuer. In this case, the processing company and the card issuer agree on a lump sum payment that covers the lower amount.
Generally, a debt settlement company will ask you to make monthly payments into an account that was set up to eventually pay off the lump sum. The debt settlement company will often instruct you to stop sending payments directly to the credit card issuers involved in your debt settlement.
A debt settlement company typically charges between 15% and 25% based on the amount of debt (called “registered debt”) you have when you sign up for debt relief. Federal law prohibits collecting these fees until your debts are paid in full.
What percentage of the debt will credit card companies pay off?
Credit card issuers usually will accept a comparison from 30% to 80% of the amount of your outstanding debt. In many cases, a card issuer agrees to be billed at 30% to 50%.
What are the disadvantages of debt relief?
While there are advantages to debt relief, it also has some disadvantages. The disadvantages include:
- Decline in creditworthiness. Debt relief will leave a negative impression on your credit report, which will result in a decline in your credit score. After debt relief is final, it may take a while for your credit score to recover.
- Steer. if more than $ 600 debt waived, you will likely have to pay tax on the amount of debt canceled.
- Flat rate payment. In many situations, instead of letting you pay off the debt in smaller pieces, a creditor will ask for a lump sum to pay off your debt.
- Collection of debts. Debt collectors may not stop nagging you about the money you owe. In fact, they could even sue you for money back.
- Duration of the process. It can take up to three years to complete a debt settlement.
How do I pay a credit card when I have very little money?
If you have very little cash to pay for credit card bills, you might want to consider a debt management plan. The National Federation for Credit Counseling states that these plans allow you to make a single monthly payment to a nonprofit credit counseling agency, which then distributes that money to your credit card companies and other creditors. To help you reduce your debt, creditors can lower your interest rates or waive fees.
While your credit report will reflect the fact that you are on a debt management plan, it will not cause your credit score to go up or down. This is because credit score providers do not use this information to calculate your score.
Alternatives to lending
When you’re struggling to pay credit card bills, debt relief isn’t the only solution. Here are two more options.
When you consolidate debt, you combine credit card debt, loans, and other bills into a single monthly payment. This is intended to lower the overall interest rate on the debt and make it easier to manage monthly expenses. There are several ways you can consolidate debt:
- Debt Consolidation Loans. With this type of loan, you essentially bundle many, if not all, of your debts under one roof. With this approach, you can potentially lower your total monthly payment and get rid of your debt faster. This loan can be a personal loan, or you can use the proceeds from a home loan or a home refinance loan to pay off the debt.
- Compensation transfer. With a balance transfer, you can move high-interest credit card debt to a credit card with a lower interest rate or no interest rate at all. In some cases, the attractive interest rate can only be for a certain period of time, e.g. B. 12 months apply. In order to benefit from the lower interest rate, you must therefore pay off the entire balance before the special interest rate expires.
Bankruptcy is a last resort for handling your credit card debt.
When you go to court to file for bankruptcy, you are aiming to wipe out, or at least pay off, much of your debts, including credit cards. However, not all debts are eligible for bankruptcy. These include student loans, car loans (if you want to keep your car), child support, alimony, and most overdue taxes.
One of the main benefits of filing for bankruptcy is that you get a fresh start financially and that the collection agencies stop bothering you.
Disadvantages of bankruptcy are:
- Long-term damage to your creditworthiness. Filing for bankruptcy can affect your creditworthiness for up to 10 years.
- Lack of access to credit. If you go bankrupt you will have to close all of your credit card accounts. Additionally, a bankruptcy filing that appears on your credit report could prevent you from receiving credit cards and loans for years to come.
As a consumer, you can pursue two types of bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
When people think of bankruptcy, they usually think of Chapter 7 bankruptcy.
In a Chapter 7 bankruptcy case, non-collateral debt – credit cards, for example – is eliminated, giving you a clean debt-free board. Eligibility for Chapter 7 is based on your income. In other words, Chapter 7 is not an option if you are making more than a certain amount of money.
In some cases, you may be asked to sell assets to pay off your creditors. But in most situations, you can keep your wealth.
Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy case, you will work with a credit counseling service to develop a court-approved plan to pay off all or part of your debt. The repayment period is usually three to five years.
A big plus at Chapter 13 Bankruptcy is that unlike a Chapter 7 case, you can protect your home from foreclosure.
At National Debt Relief, we pride ourselves on empowering people to regain their financial stability through our proven debt relief program. Contact us and speak to a financial professional who will work with you to find the best option to pay off your debt and help you achieve financial independence.