Thursday, August 11, 2022

How To Get Relief From Credit Card Debt

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If You Have A Personal Loan Or Small Business Loan

How to Get Out of Debt Without Hurting Your Credit Score | Freedom Debt Relief

Most lenders and creditors are making efforts to adjust or alter terms on existing loans if the borrower is facing a financial hardship due to the coronavirus outbreak. For instance, your lender might work with you to extend your repayment term or otherwise restructure your debt obligation to say, reduce the interest rate. Your lender might also offer payment accommodations, such as allowing you to skip some payments or extending the due dates, which would help you avoid a delinquency and negative credit bureau reporting.

To find out what kind of relief is available to you, contact your lender.

Causes Of Credit Card Debt

There are a lot of reasons people go into credit card debt. Going into debt is not necessarily a sign of financial irresponsibility, so if you find yourself in credit card trouble, it should not be a source of personal shame or stigma.

The leading causes of credit card debt are:

Inflation and the cost of living

Inflation and the cost of living: Americans may be earning more than they used to but inflation and a higher cost of living are outpacing that bump in pay for many of us. After crunching the numbers, Investopedia noted: “While the average person is still making the same amount of money when accounting for inflation, prices for many of the daily necessities have gone up considerably, which means that each dollar earned does, in fact, buy less than it did 20 years ago.” To make up the difference, many turn to credit cards to buy necessities.

Vacations and home improvement expenses

Unexpected car or appliance repairs

The Debt Snowball Method

With the debt snowball method, youll focus on paying off your smallest credit card balance first, then youll work your way up to your larger balances.

Follow the steps:

Step 1: Continue to make the minimum payments on all your credit cards.

Step 2: Use your extra money towards the credit card with the smallest balance.

Step 3: When the credit card with the smallest debt is paid off, move on to the card with the next smallest debt.

Step 4: Continue this process until all your debts are paid off.

The benefit

The snowball method can be a good option for those who have several small credit card debts to pay off. This method lets you see progress faster, but you may end up paying more overall since youre not considering your cards interest rates.

If you have money saved away for a rainy day, you may want to consider using some of your savings to help pay down your credit card debt. If your interest debt is higher than the amount of interest youre earning in savings, youre better off using some of your savings to lower your debt because carrying a high interest on a high balance will cost you more.

Carrying credit card debt can negatively impact your financial future. Paying it down means youll save on interest, improve your credit score and have more money available to put away for emergencies or an important savings goal.

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Get Professional Credit Counselling

How to Get Rid of Credit Card Debt Legally

Professional is less painful than bankruptcy because credit counselling will teach you how to manage Canadian credit card debt more responsibly. It will also help you get the rest of your finances in order. Canada has many reputable credit counsellors who can help you get your debt under control. They can also lay a foundation for a solid financial future. It helps you get counselling from the same firm that helps you consolidate your credit card debt . After all, that company will know your situation best and be able to come up with a relatively pain-free way to retire your debt within the constraints of your budget. The downside of credit counselling is that you will have to repay the full amount of debt you owe. This is because credit counselling companies are usually only able to reduce the interest rate youre paying and negotiate to extend your payment period. This makes payments lower but doesnt affect your overall principal balance.

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Enroll In A Debt Management Program As Soon As Youre Ready

If you decide a debt management program is your best option, then you can enroll as soon as youre ready. Then our team will go to work. We call each of your creditors to work out three key factors that will make it easier for you to get out of debt:

  • That they agree to accept payments through a debt management program
  • To reduce or eliminate interest charges applied to your credit
  • That they will stop tacking on penalties and fees to your debt
  • Once all your creditors sign off, you start the program. You make one payment to us each month, then we distribute it to your creditors on your behalf. Heres what you can expect from a debt management program:

    Payments
    Positive or neutral

    How To Determine If You Should Negotiate Your Debt

    If you have credit card debt that you are looking to settle with the credit card company, consider a few factors first. First, explore other options like credit counseling or bankruptcy. Either of those may be a better fit for your specific situation.

    If you are not already several months behind in your payments, the credit card company may not be willing to enter into debt negotiation, so you might need to consider other options. The credit card company will also want to make sure that you have the financial ability to pay any settlement. This could be a lump sum or enough monthly cash flow to fulfill your settlement obligations.

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    How Does Credit Card Debt Settlement Affect Your Credit Score

    If you work with a debt settlement company, the company might advise you to stop making payments on your debt during the negotiation process. This may cause your debt to fall into delinquency, which your creditors will then report to the credit bureaus. Delinquencies stay on your credit report for seven years, meaning you could feel negative impacts even after you settle the debt.

    Debt settlement may also affect your credit score if it affects your credit utilization. If you stop making payments on your debt, your balance may climb due to additional charges and late fees. Using too much of your available credit and not paying off debt will cause your score to drop while youre in the process of settling that debt.

    Diy Debt Relief Option : Workout Arrangement

    Debt Settlement Negotiation – How To Settle Credit Card Debt | Freedom Debt Relief

    A workout agreement or workout arrangement is a repayment plan that you set up with a creditor. The creditor will typically freeze your account, but in exchange, they reduce or eliminate interest charges. Then they help you set up a payment plan that you can afford.

    To use this option, your account typically still needs to be with the original creditor. Its best used when youre a few payments behind, but they havent yet closed the account. This option is similar to a debt management program, except you set up a plan with each individual creditor. That can make workout agreements challenging to fit in your budget if you have more than one arrangement that you want to set up.

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    Tip #: You May Be Able To Eliminate Other Types Of Debt Too

    Many solutions to pay off credit card debt can be used to pay off other types of debt, too. This is particularly true with a debt consolidation loan or debt management program. In both cases, you may be able to include:

    • Unpaid medical bills
    • Store credit accounts for furniture or electronics
    • Other unsecured personal loans

    Debt consolidation loans can also include things like unpaid federal or state back taxes. In some cases, you may also be able to consolidate student loans with your other unsecured debts. The more debts you include in your elimination strategy, the better.

    Ideally, the only thing left after you use one of these repayment strategies should be your mortgage and auto loans. If you couldnt consolidate your student loans with your other debts, you can use a to eliminate those debts faster.

    Best For Tax Debt Relief: Curadebt

    While other debt relief companies shy away from tax debts, CuraDebt offers special assistance for consumers who owe back taxes. This program is offered on top of its traditional debt settlement programs that can help consumers become debt-free while paying less than what they owe.

    • Debt settlement programs and assistance with back taxes

    • Free consultation

    • In-person consultations \ only available in Hollywood, Florida

    CuraDebt has been in business since 2000, and it offers a free consultation for consumers interested in its debt relief programs. Like other debt relief companies, CuraDebt also displays an array of debt settlement letters on its website, many of which show consumers who settled debts for as little as 20% of what they owed. Additionally, the company reports that its customers typically pay approximately 20% of their enrolled debt amount in fees over time. There are no monthly administration fees.

    Where many other debt relief companies dont touch outstanding tax debts, CuraDebt offers specific assistance for consumers who owe back taxes and need help coming up with a plan while they manage other debts they have. This makes CuraDebt unusual in that it can help consumers who have multiple types of debt including taxes, credit cards, and personal loans.

    Read the full CuraDebt review

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    The Debt Avalanche Method

    With the debt avalanche method, youll start paying off your credit card with the highest interest rate, then youll work your way down to the next card with the highest interest rate.

    Follow the steps:

    Step 1: Continue to make the minimum payments on all your credit cards.

    Step 2: Use any extra money to pay off the credit card balance with the highest interest rate.

    Step 3: When the credit card with the highest interest rate is paid off, move on to the next highest interest rate card.

    Step 4: Continue this process until all your credit card debts are paid off.

    The benefit

    The avalanche method can help you pay less interest and get out of debt faster since youre working towards paying down your higher-interest accounts first.

    Not All Debt Relief Programs Are The Same

    Tips and Tricks to Get Started Paying Off Credit Card Debt ...

    Depending on your situation, you may be eligible for a number of debt relief options. These can include consolidation, payment plans, debt settlement, and, as a last resort, bankruptcy. But, just as every superhero has his or her own strengths and weaknesses, so, too will each of your debt relief options.

    A variety of payment plans can be obtained through negotiations with your credit card issuers, or, if the debt has gone to collections, whoever holds the debt. Payment plans may sometimes include receiving a lower interest rate or extended payment terms to make the monthly payments more affordable.

    Debt settlement involves making payments to an escrow account held by a debt relief/settlement company, which holds the funds until such a time as you reach an amount that your creditors may find acceptable. Then, the company works to settle your debt with your creditors for that amount. Debt settlement can resolve your debts for less than you actually owe, but comes with costs to your credit score.

    Bankruptcy comes in two main options for consumers: Chapter 7 and Chapter 13. Regardless of its type, bankruptcy should always be the last resort. While it may eliminate your responsibility for some or all of your unsecured credit card debt, it will have lasting impacts on your credit. For example, those who file under Chapter 7 may lose property and the bankruptcy data will remain on their credit reports for 10 years after filing.

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    How Much Credit Card Debt Does The Average American Have

    According to Transunion, as of the second quarter of 2021, the average bank credit card balance was $4,817. The average American carries around $90,000 in debt, including all forms of debt from credit cards to student loans and mortgages.

    The amount of credit card debt a person is likely to carry depends on a few different demographics:

    • On average, individuals with college degrees carry an average of $8,200 in credit card debt.
    • People who did not go to college have an average of $4,700 in credit card debt.
    • Gen X has the highest amount of total debtaround $140,000 per person.
    • Gen Z has the lowest total debt at just $16,000.

    Along with student debt and mortgage debt, credit card debt remains one of the biggest sources of debt for many Americans.

    Option Three To Eliminate Credit Card Debt Without Paying:

    Chapter 7 bankruptcy makes it possible for a person to get out of credit card debt without paying it back. You can eliminate your credit card balances in under six months.

    However, consumers will pay the price of bankruptcy in two major ways

    1.) seven-ten years of adverse credit

    2.) up-front bankruptcy attorney fees

    Bankruptcy makes it difficult to recover financially, ruining your credit for up to seven years. For example, rebuilding your credit score requires positive payment history on unsecured and secured credit accounts.

    With bankruptcy on your credit report, lenders may deny you credit, including credit for car loans and even a mortgage.

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    What Is Debt Settlement

    Generally speaking, debt relief companies turn to debt settlement as the best debt relief option. With debt settlement, these companies ask their clients to set aside a specific amount of money in a dedicated savings account each month. The goal of this account is to build up a sum of money that can be used to settle debts later on.

    Debt relief companies then negotiate with creditors on your behalf, which typically involves offering less than what you owe toward your balances. At the end of a debt settlement program, clients should be debt-free and able to move on with their lives.

    While paying less than what you owe may sound ideal, the Federal Trade Commission notes that debt settlement has risks. For example, debt relief companies will ask you to stop paying your bills while they work to settle your debts, which can have grave consequences for your credit score. Also be aware that creditors are not required to settle your debts for less than what you owe, so theres no guarantee your debt relief company will be successful.

    Types Of Credit Card Debt Relief

    How to Get Debt Help | Freedom Debt Relief

    There are a number of different relief programs designed to help with credit card debt management through tried-and-true credit card debt solutions.

    Lump-sum Credit Card Settlement

    If you have access to a decent chunk of cash, such as from an inheritance, you can attempt to discuss a settlement for less than the full amount owed. Typically, the credit card debt relief repayment can be broken up into 3 segments. With a lump-sum settlement, its important that both you and your lender are clear that the agreed-upon amount will satisfy the costs of the credit card debt and to get this agreement in writing. Its also important to understand that paying less than what you owe can negatively influence your credit score depending on how the repayment is reported to the major credit bureaus. If a loan provider forgives $900 worth of the principal amount of your credit card debt, it must report that amount to the IRS because it is greater than $600. For example, a lump sum payment of $2,500 to work out a $4,500 credit card debt will likely mean that youll have to pay taxes on an additional $2,000 in earnings next year.

    Workout Arrangement for Credit Card Debt

    With this type of credit card settlement, the bank might eliminate or reduce your minimum monthly payments, rate of interest, and may even stop assessing late charges or over-limit fees. You may also be able to ask the lender to forgive previous fees to lower the balance even further.

    Forbearance Program

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    Will A Chapter 13 Bankruptcy Help Me Get Credit Card Debt Relief

    In a Chapter 13 bankruptcy, you repay your creditors in full or in part over the course of three to five years under a repayment plan. Only a part of your unsecured, non-priority debt, such as credit card debt, is generally covered by the plan.

    The amount youll pay is determined on your disposable income as well as the value of your nonexempt property . Throughout your plan, youll pay the bigger of the two sums.

    Most Chapter 13 filers pay just a tiny portion of their credit card and other unsecured obligations, and the remaining credit card amount is dismissed at the conclusion of the payback period.

    The Credit Card Debt Relief Act Of 2010

    In 2010, the Federal Trade Commission stepped into regulating debt settlement companies. The main part of this legislation focused on creating whats known as an advance-fee ban. This regulation prevents debt settlement companies from charging any fees up-front before they complete at least one settlement.

    In the past, scammers would set up fake debt settlement companies, promising to help people get out of debt. Theyd charged setup fees that would be as high as 25-40% of the debt enrolled in some cases. Theyd take the money and then disappear, leaving the consumer out the fees without any settlements reached.

    The Credit Card Debt Relief Act of 2010 prevents this scam. Settlement companies cannot charge fees upfront without at least a money-back guarantee. They can only apply fees once they settle a debt on your behalf.

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