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- What To Do After Receiving A Debt Validation Letter
By Sean A. Kelly
Are you struggling with your credit card debt? Falling behind on your minimum monthly payments? You may feel that theres nothing you can do and things are getting out of control. Thats not true. You can contact your credit card company for help, explain your situation in an honest and polite manner and find out what kind of credit card relief program is available. They will be more than willing to help especially if you have been a good customer and all the years you’ve made your payments on time without a hitch.
Before meeting up with the credit card company you can find out which credit card relief program is most suited for your specific financial situation. You may review the following options that are available for you:
Balance Transfer: This is the simplest way to consolidate debts. Firstly, you need to total up all the minimum payments required on all your credit cards with debts. This will give you a combined monthly balance. Now add an additional amount, whatever you can free up from your monthly budget, to this total balance. Lets say you have three credit cards with debts and you need to pay a minimum amount of $100 for each card. The total would be $300 per month. Add an additional of $100 and you will get a new balance of $400 per month. Transfer all three credit card debts to a new balance transfer card and pay $400 to this card every month.
When looking for a balance transfer card, opt for an offer with 0% interest rate and zero transfer fees or low transfer fees with a cap of $50-$75. You also need to consider the interest rate after the offer period ends, preferably below 10%. With determination, you can probably pay off your entire debt before the interest rate offer expires.
Debt Consolidation Loan: You may consider a debt consolidation loan if you have large credit card debts and you think you cant pay off during the balance transfer offer period. There are two types of debt consolidation loans: personal and home equity/refinance loans. Home equity/refinance loan is a great way to pay down debt. It has a lower interest rate which is also tax deductible. You can use the additional tax savings to pay off more debts. If you dont own a home or your home doesn’t have equity, then you should apply for a personal loan. But, It is hard to find and harder to get approvals for. Interest rates are higher than for home loans, but lower than credit card rates.
Credit Counseling: A credit counseling service (CCS) helps to review your debts, income, and expenses, and work with you to create a payment plan called Debt Management Plan (DMP). It will work with your creditors to reduce the interest rates and set a fixed monthly payment. You only need to make a single monthly payment to the service, which will then distribute it to your creditors. Do take note that once your debts are enrolled in this program, you no longer have access to your cards to prevent you from creating new debt. This service will not affect your FICO credit score but many lenders will perceive it as similar to bankruptcy.
Debt Settlement: Debt settlement, also called debt negotiation is a process of negotiating with the credit card company to either establish a lump sum payment that is lower than the total balance owing or a small amount of monthly payment towards a reduced balance over a period of time. The forgiven balance is considered taxable income by the IRS and the settlement will have negative impact on your credit report.
Bankruptcy: If you have tried all options and failed, then you can file for bankruptcy especially if you have other debts like high medical bills. Due to the revisions in 2005 to the bankruptcy law, it’s now more difficult to eliminate credit card debts through bankruptcy. You’re more likely to be placed into a court-mandated payment plan.
The various options mentioned may be overwhelming for you and you may not be sure what to do. You can always get help from debt services providers for a fee. Different companies provide different services ranging from debt consolidation, debt settlement, credit counseling to bankruptcy. It really depends on your specific situation, your budget and the impact on your financial future.
Some debt services providers or debt relief company offer free services until they have successfully resolved a debt for you. You can speak to their debt consultants to review your situation. Whichever option you finally take on, it is important to be committed to it and resolve to reduce your expenses. You could probably use all extra monies to pay off your debt in the shortest time possible.
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