Settling credit card debt can seem impossible when expenditure exceeds income. According to the U.S. Congress' Joint Economic Committee, "Vicious Cycle: How Unfair Credit Card Company Practices Are Squeezing Consumers and Undermining the Recovery." in May 2009: "As household wealth has declined in the downturn, more American families are facing financial distress due to high debt burdens. In 2007, before the recession began, 14.7 percent of U.S. families had debt exceeding 40 percent of their income."
Settling Credit Card Debt
It is possible to get debt assistance through a debt settlement program, debt management plan or by filing for bankruptcy. These debt solutions can help to address an income shortfall through a reduction in monthly payments or even a write-off of some or all of the principal. It should be remembered that defaulting on or changing the terms of a credit agreement will have negative ramifications for FICO scores. However, the majority of people have little to lose as they have already missed or made late payments.
Debt Settlement Programs
The settling credit card debt process is handled by an intermediary or debt settlement company. They will negotiate with creditors in an effort to reduce the amount owed by up to 50%. Once a reduction in the principal has been established, they will then work out a repayment plan that lasts between 12 and 36 months. At the end of this period, any remaining unsecured debt is written-off. Avoid companies that front-load fees; only agree to a repayment plan where management charges are taken each month.
Credit Card Debt Management
Unlike a debt settlement program, none of the principal is written-off. Debt assistance is achieved by establishing a monthly payment that does not cause further financial hardship. Whilst collection agencies are less likely to pursue debtors, it can take a long time to clear. Settling credit card debt can be achieved more quickly as creditors often choose to freeze further interest payments and charges.
Filing for Bankruptcy
When most people consider settling credit card debt, filing for bankruptcy is the first debt solution they think of. Since the reform of the bankruptcy laws in 2005, filing under chapter 7 is now only possible for those who have an income below the state median and don't have non-exempt assets (a second home, valuable collection etc). It is possible to become debt-free in just 4 to 6 months. However, it is still possible to file under chapter 13, provided sufficient disposable income exists to make a monthly payment to creditors. Serious debt can be cleared in 3 to 5 years.
Settling credit card debt can be achieved through an evaluation of income and expenditure or a debt solution, such as a debt settlement program, debt management plan or filing for bankruptcy. Always consult a credit counselor as it is essential that the right source of debt assistance is opted for at an early stage.
Sources
CreditCards.com
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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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