Credit Card Debt Relief Options

Credit Card Debt Relief Options

Credit Card Balance Transfer

Balance transfer is the easiest way to consolidate debt. It requires you to transfer debt balances from each of your credit cards to a new balance transfer card. Each month, you will need to pay the consolidated total of all of your previous minimum payments, plus any additional amounts that you are able to squeeze from your budget.

In this way, you avoid paying numerous minimum payments and focus on one balance that you can gradually write down.

The ideal balance transfer card will offer a 0% initial interest rate and zero transfer fees. You shouldn’t pay more than $50 to $75 for transfer fees on any new credit card. Additionally, you should be aware of the interest rate after the offer period ends. It should be less than a 10%, in the event that you have any amount of debt remaining on your balance.

Your balance transfer card will hold all of your debt in a consolidated location. With a little hard work and determination, you will probably be able to write down all of this debt prior to the expiration of the initial interest rate period.

Credit Card Debt Consolidation

If you are unable to pay down your debt to a reasonable level within the initial balance transfer period, you should consider a debt consolidation loan. A debt consolidation loan comes in two forms: Home Equity Loans and Personal Loans.

Home Equity Loans

These loans are written against the equity of your home, and are a great way to pay down your consolidated debt. Interest rates on home equity loans are less than personal loan rates and credit card rates. The interest payments may be tax deductible on these loans, allowing you to use the additional savings to pay down your debt further.

Personal Debt Consolidation Loan

A personal loan should be applied for if you don’t own a home or if your home doesn’t have any equity. The rates are higher on personal loans than home equity loans, but are still often lower than credit cards interest charges.

A loan should only be taken out if you are determined to use it for writing down your credit card expenses. The purpose of the loans is to write down your existing debt, not to make additional purchases and incur greater debt balances.

Credit Counseling

Credit counseling services offer you help in managing your credit card payments. They will help to create a payment plan, based on your debts, income, and expenses. If the service determines that it’s necessary, they may suggest a Debt Management Plan or Debt Settlement.

Debt Management Plan

Using this plan, the credit counseling service will negotiate your debt with your creditors in order to reduce your interest rates. They will establish a fixed monthly payment plan, which you will pay directly to the service. The service distributes this payment to your creditors according to the debt agreement. This allows you a more simplified payment process, removes your access to the existing cards, and prevents you from incurring any additional debt.

Debt Settlement

The credit counseling service may recommend debt settlement if you are unable to meet your payments. The service negotiates with your creditors to reduce you total balance due, often by as much as 40%. A payment plan is established and can be made monthly or in a lump sum.

This option should only be chosen if you cannot increase your income or reduce your expenses any further, and you owe a significantly larger balance than you can pay. Debt settlement, also called debt negotiation, can seriously damage your credit score and can lead to being taxed on the debt that was forgiven.

Bankruptcy

Bankruptcy is the last resort to dealing with credit card debt. Unless you have other debts that prevent you from paying your balance, such as high medical pills, you will most likely be placed into a court mandated payment plan. Revisions in bankruptcy laws in 2005 cause a reduction in credit card debt through bankruptcy to be very difficult to attain.

Bankruptcy and debt settlement should only be considered if paying down your debt is simply impossible. The best solution is to maintain a consistent budget, to not incur greater debt, and to reduce your expenses. If you are committed, reducing your debt through balance transfer or a consolidation loan will allow you to maintain control of your budget and financial future.