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Guide to Credit Card Debt Relief contents
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Guide to Credit Card Debt Relief

6 min read
Last Updated: August 21, 2024
Using your credit card

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Key Takeaways

  1. Credit card debt relief services help reduce, consolidate, or forgive credit card debt.

  2. When deciding on a debt relief program, some factors include what you owe, if you can pay it back, your current interest rates, and potential fees.

  3. Consider how each debt relief program can impact your credit and how long it may stay on your credit report.

Credit card debt relief is the process of reducing or paying off your outstanding credit card balances. If you’re grappling with credit card debt, you’re not alone. Thankfully, there are a variety of credit card debt relief programs that can help.

 

The type of debt relief program that’s right for you will depend on the amount of debt you have and what your finances will allow you to repay. This article will provide an overview of some of the debt programs available and the steps you can take to find relief.

When to pursue credit card debt relief

If you’re struggling to make even the minimum payment on each credit card bill or dealing with mounting late fee charges from credit card companies and debt collector calls, you may need to speak to a professional about your debt relief options. Coming up with a debt repayment plan yourself can be overwhelming. Debt relief services and programs can help.

Credit card debt relief programs

There are a variety of debt relief programs available, but not all of them are right for everyone. Here are a few to consider:

Debt consolidation

Debt consolidation combines multiple debts into one. If you have a balance on two or more credit cards, a debt consolidation loan could help you pay them off. Consolidating into one loan may save you money on interest and help you manage your debt more efficiently.

You’ll need a good credit score to qualify for most debt consolidation loans, and you may pay balance transfer fees. Debt consolidation doesn’t provide debt forgiveness; you’re still responsible for the entire sum of your balances.

To calculate how much you could potentially save by consolidating your debt, use the Discover debt consolidation calculator.

Debt settlement

Debt settlement is negotiating with a credit card issuer to settle your debt with a lump sum payment that’s less than what you owe. And while you may save money, a debt settlement can hurt your credit and stay on your credit report for up to seven years, according to Experian®.

You can attempt to settle your debt yourself by contacting your credit card provider. Typically, a credit card company will only participate in a settlement if you’re behind on your payments and unlikely to pay back your debt. A creditor might agree to a settlement to recover a portion of what you owe as opposed to nothing. There may also be tax implications that add costs. You may want to talk with a tax professional or financial advisor.

There are debt settlement companies that will negotiate with creditors for you, but there are risks to this option. Creditors aren’t required to accept an offer, and some settlement companies charge high fees with no guarantee of success.

The Consumer Financial Protection Bureau recommends vetting debt settlement companies to help you determine if you should avoid doing business with the company.

Balance transfer

A balance transfer lets you move debt from multiple credit cards to a single card, typically with a lower interest rate. A credit card company may offer 0% introductory rates, but you could pay a transfer fee for credit card consolidation.

Did you know?

Like a consolidation loan, using a credit card balance transfer can help save you money and simplify your debt payment process. You’ll need a good credit score to qualify for most cards with low introductory rates, and combining your debt won’t reduce the amount you owe.

Learn More

Credit counseling

Credit counseling involves sitting down with a credit counselor to assess your financial situation and choose the debt relief option that’s right for you. Before working with a debt relief company, do your homework. Most trustworthy agencies are non-profit and employ certified financial counselors.

To ensure the counselor you choose is thoroughly trained and certified, consider credit counseling service approved by the U.S. Department of Justice’s U.S. Trustee Program.

A credit counselor may work with you to create a debt management plan (DMP) to simplify your debt repayment. With this process, you make one monthly payment to the credit counseling agency instead of multiple payments to separate creditors. The agency then pays your creditors, so you don’t have to juggle due dates, making debt management easier.

As part of a DMP, your counselor may reach out to your creditors to negotiate a reduction or elimination of the interest charges on all your outstanding debt or to extend your debt repayment timeline. However, creditors aren’t obligated to participate. Keep in mind that while enrolled in a DMP, you may not be able to use your credit cards or apply for new credit. You may even have to close a credit card account, which can hurt your credit score.

Bankruptcy

Bankruptcy is a legal proceeding that allows you to clear your debts. While bankruptcy is often a last resort, it can provide a fresh financial start to those debilitated by debt.

Chapter 7 bankruptcy is the most common form of bankruptcy for an individual, according to Cornell Law School. When you file for chapter 7 bankruptcy, a trustee is appointed to oversee your case. The trustee will sell your assets and use the proceeds to repay your creditors.

While bankruptcy erases most debt and resets your finances, there are some consequences. Bankruptcy negatively impacts your credit and can stay on a credit report for up to 10 years, making it challenging to secure credit, according to the U.S. Trustee Program.

Questions to answer when choosing a credit card debt relief program

Credit card debt relief programs can provide much-needed financial assistance. But it’s important to choose one that best meets your needs. When determining which program is right for you, consider the following questions:

  • Interest rate - Are you able to secure a lower interest rate through a debt relief program?
  • Monthly payments - Can you afford the monthly payments associated with the debt relief program?
  • Credit score - How will the debt relief program impact your credit score and for how long?
  • Terms - Are you comfortable with the terms associated with the debt relief program, e.g., the repayment length?
  • Fees - What are the fees associated with the debt relief program? Are they reasonable, and can you afford them?

Is a credit card debt relief program right for you?

While there are several debt relief programs available, it’s up to you to carefully weigh the risks and benefits of each. If you can pay off your credit card debt, you may consider a debt consolidation loan or a balance transfer credit card to help simplify the repayment process. If your debt is crippling and you can’t pay it back, bankruptcy may eliminate many of your debts and provide a new financial start.

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