Although paying off credit card debt is normally advisable, not everyone can afford to do this. There comes a point when a person's debt-to-income ratio becomes unsustainable. Many individuals continue to struggle on at great cost to their health.
Those considering a debt relief program are likely to find that not paying credit card debt will improve their bargaining position considerably. The sooner your debt is defaulted on, the easier it is for debt settlement companies to reach an agreement with your creditors.
Why Not Paying Off Credit Card Debt is so Important
Debt settlement companies are better placed to help those who aren't already paying credit card debt off each month. Until scheduled repayment is at least 120 days past its due date, the account of the cardholder won't have been passed to a collection agency.
This means that it isn't construed as a bad debt and creditors will not be prepared to amend the terms. This means no reduction to the principal (amount owed) or monthly repayments. Once a bad debt is sold-on to a collection agency, the negotiation process can commence.
How Debt Settlement Companies Help You to Pay Off Credit Card Debt
An intermediary will negotiate with debt collections agencies in order to achieve a reduction to the principal and monthly payments. They may be able to clear up to 50% of unsecured debt. This means that payment becomes more affordable for the debtor
Once a debt relief program is in-place, paying-off credit card debt takes place over a 12 to 36 month period. It may be possible to increase the term, but this is not advised. Creditors are proven to be far less likely to agree as it takes longer before they receive payment.
Debtor's are advised to do plenty of homework before signing-up to a debt settlement program. Whilst management charges will amount to 15% of cumulative contributions, avoid any plan where the fees are front-loaded (charged up-front).
Dealing with Debt collectors While Paying Credit Card Debt Off
All dealings with collection agencies will be taken care of by the intermediary. In practice, these are likely to stop once a debt relief program is in place. Having a real person to turn to can alleviate a lot of the pressure associated with owing money.
Not paying off credit card debt for at least 120 days is simply a means to an end. It means that the balance will be sold to a collection agency as a bad debt which allows debt settlement companies to negotiate more favorable terms than would otherwise be available.
Sources
"Knee deep in debt. " Federal Trade Commission (FTC).
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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