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How To Handle Credit Card Debt

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Pay Off Debts In Order Of Interest Rate

How to manage credit card debt during COVID-19

There are several schools of thought on the best way to pay off debt. Some people say go from the smallest to largest balance, others say to pay off the debt you hate the most first to build momentum. The Nerds recommend you pay off debts the best way from a mathematical standpoint which is great for you, because it’s also the cheapest way.

Write down your debts and their respective interest rates. Now, put them in order from highest rate to lowest. The debt at the top of your list will be the first one you pay off. For any debt that isn’t the top one, you’ll want to make just the minimum payment. Use any other available funds to pay down the top debt as quickly as possible. After that debt is gone, you’ll focus on the next one on the list, and so on, until all your debt is gone.

Protect Your Credit Reports

Settling your debt can majorly affect your credit. The ways that your settled debt shows up on your credit report have drastically different effects on how future lenders see you, and your credit scores will also be affected. If you dont ensure that your settled debt is reported to the credit bureaus in a certain way, then it can seriously hurt your credit scores. Ask your lenders to report your settled debt as paid as agreed. This is still a negative item on your report, but its not as harmful as default or charge-off.

Educate Yourself About Your Rights

The U.S. Federal Trade Commission has several publications designed to educate consumers about their rights under the Fair Debt Collection Practices Act.

Harassing and nuisance phone calls, threats and abusive language are illegal and should be reported to the U.S. Consumer Financial Protection Bureau and your state attorney generals office. Find your state attorney general through the National Association of Attorneys General. Debt collectors can even contact you on social media, though there are rules for how they can do this.

Submit a complaint to the CFPB via its website or by phone at 855-411-2372.

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Tips To Manage And Reduce Credit Card Debt

Getting on top of your credit card debt generally relies on a three-pronged attack involving arresting spending habits, improving saving habits, and getting serious about a debt-elimination strategy.

In June, the average interest rate on credit card balances was 16.01%. Thats actually a favorable rate historically, but its enormous when you consider the Federal Reserve plans to keep lending rates to banks at nearly zero through 2022 30-year mortgage rates are stuck at close to 3% and unsecured personal loans start around 6%.

If youre the average balance-carrier, hacking away at nearly $10,000 in credit card debt at 16% will threaten your ability to buy a house, save for college, feather a retirement nest egg, invest, or even cope with day-to-day expenses.

Work On Your Financial Habits

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If you dont alter the behavior that got you into credit card debt in the first place, you might slip back into debt again in the future.

Fox stresses the importance of differentiating between wants and needs. Do you need food and housing? Definitely. Do you need to pay your bills and set up an emergency fund? Most likely. Fox says these needs should take precedence over wants.

He also stresses the need to stick to the budget youve created. If youre not keeping close track of your income and spending, you may wind up in debt all over again.

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Be Persistent And Document Everything

If you want to negotiate with a credit card company, the process usually begins with a phone call. However, it may require long conversations with multiple people over days or weeks. Before you call, make sure you know exactly how much you owe, what your interest rate is, and any other important account details.

Ordinarily, you’ll need to explain that you’re hoping to work out a credit card debt negotiation so that you can make sure the credit card company gets some of its money back, even if it’s not the full amount, which is better than nothing. If you’re considering filing for bankruptcy, then also let the company know that, and tell them that you’d rather negotiate your debt repayment instead.

Don’t give up if the first discussion doesn’t go the way you’d like. These negotiations often happen over time. Be sure to document the details of every conversation you have and whom you’re having it with.

If you do strike a deal, then be sure to get the terms of the settlement in writing to avoid future headaches and protect yourself.

As an alternative to pursuing a debt settlement with your credit card issuers, you could speak to a nonprofit organization, which offers certified counselors trained in consumer credit, money and debt management, and budgeting. They help individuals create personalized plans to solve their debt problems and offer solid financial planning advice.

How To Handle Credit Card Debt When You’re In Too Deep

by Dana George | Updated July 21, 2021 – First published on April 25, 2021

When credit card debt is weighing you down, it’s time to find relief.

If the typical American charged each of their credit cards to the limit, they would end up $30,365 in debt — that’s the average credit card limit in the U.S. More than $30,000 in credit card debt may not seem like a big deal to someone with secure employment who earns more than enough to pay it off, but it’s all relative. If you’re currently unemployed or just making ends meet, even $5,000 in credit card debt may feel overwhelming.

Here, we’ll discuss real steps you can take to handle credit card debt when it becomes too much. They won’t all apply to your situation, and that’s okay. Pick and choose what works for you.

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Consider Debt Consolidation There Are Different Types

Debt consolidation is another option if you have hefty debt loads, and there are different ways to consolidate your debts. If you have access to a low interest credit card, or qualify for one, it might be an option, but can quickly lead to a never-never plan. Debt consolidation with a line of credit can lead down the same path if youre not extremely diligent about using it as a debt repayment tool.

The reason for this is because credit cards, lines of credit, and overdrafts are examples of revolving forms of credit. You can use them, make a payment, and use them again over and over. If you want to borrow money to pay off your debts, ask your lender about a debt consolidation loan at a reasonable interest rate instead.

Another type of debt consolidation is a debt management program. In this instance, youd work with one of our Credit Counsellors to combine your payments into a single, affordable, monthly sum based on your budget. Dont worry, the Credit Counsellor will help you figure your budget out, and if its a good option for you to consider, the Counsellor explains the program in detail. If you want to know more, and well be happy to answer your questions.

Know Your Negotiation Options

How to manage credit card debt

Before negotiating with a credit card company on your own, you should get familiar with the types of settlement options that are typically available to consumers. If the credit card company is willing to entertain the idea of a debt settlement, then the odds are high that it will want to make one of the following arrangements.

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Find A Consumer Lawyer

If you are served with a notice of a lawsuit, find an attorney who specializes in consumer law to represent you in court. The National Association of Consumer Advocates provides an attorney lookup page on its website.

Consumers who lose court judgments may have their wages garnished. Some suits are filed by debt collectors with little proof of the original debt owed, says Mary Spector, a law professor at Southern Methodist Universitys Dedman School of Law and director of its Consumer Law Project.

Get more information about the debt. Find out who the original creditor is, the debt amount and whether the debt has been sold.

Depending on the state, the statute of limitations may have expired on the debt.

Without a party appearing in court to challenge the sufficiency of the evidence, the creditor wins often based on scanty information, she says.

Chances of having the lawsuit dismissed in court may be greater if you show up in court and have representation, Spector says.

Be Careful With Cash Advances Before Filing

Cash advances on your credit card can also be a negative factor when you file for bankruptcy. The debt is not discharged if you take out over $950 in cash advances 70 days prior to filing for bankruptcy. This stands regardless if you use that advance for essentials or luxury purchases.

There is an exception for the cash advance penalty. For example, lets say you took out a cash advance to repay student loans. You then get diagnosed with a severe medical condition that renders you unable to work, so you file for bankruptcy. Because you are unable to repay this debt due to extreme hardship, it will be discharged. Note that if you took out the cash advance to pay your student loans intending to discharge the debt in bankruptcy, you can be sued for nondischargeability.

Connect with top-rated bankruptcy attorneys to make sure you avoid issues when you file.

However, if you can prove that the recent purchases are necessary items, such as heat for your home and medical expenses, those may qualify for discharge.

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Choose A Payoff Strategy

If you have a little extra money left over each month , you can pay off your credit card debt a little faster. None of these will work overnight, but if you choose a debt payoff strategy and stick with it, you’ll reduce the amount of interest you have to pay and you’ll get out of debt faster. Here are three examples.

Consider Debt Settlement Or Bankruptcy

How to Tackle High Credit Card Debt

Debt settlement and bankruptcy are two additional ways to get out of credit card debt. The trouble is, they will likely affect your credit score. Brian Dechesare, a former banker and founder of Breaking Into Wall Street, warns that these methods should be used as a last resort. “You should only consider both in extreme situations when you’ve exhausted all other options and can’t make ends meet to pay,” he says.

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Don’t Confuse Wants And Needs

It’s easy to convince yourself that you “need” to purchase a new tv or that you “need” to go on vacation. The truth is, there aren’t that many true needs in life. You need food, shelter, clothing, transportation, and things like that. You want steak, a nice house in the suburbs, designer labels, and a luxury car, for example.

Pros And Cons Of The Debt Avalanche

The debt avalanche will help you pay less in interest and will get you out of debt more quickly. Youll also have the satisfaction of seeing the highest interest rates disappear first.

Thats why the debt avalanche is our recommended method for paying off debt.

The downside? Itll generally take longer to see progress than with the debt snowball. So if youre counting on some small wins to get you motivated, the next method may be a better fit for you.

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Do Your Creditors Get Paid

In the example above, the collection agency agrees to stop collection on this debt for over $15,000, but rest assured the original creditor was paid back in full.

First off, the original creditor will write off the debt showing it as a loss, reimbursing 100% of the money through tax credits.

Secondly, the original creditor profits by selling the credit card account to a collection agency. More profit!

Thirdly, credit card companies can get reimbursed through banking insurance. Like how people have car insurance, banks have banking insurance.

And fourthly, consider all of the late fees and interest that accrue after the borrower stops paying on a credit card, artificially inflating the balance even more, and banks will eventually write all of it off. So, in the end, banks may get paid back more than three times what was owed on the original credit card balance.

Since banks are reimbursed all of the money owed on an unpaid credit card balance and sometimes more explained, they get careless when selling delinquent credit card accounts to collection agencies. In summary, paperwork goes missing, and information turns inaccurate.

Consequently, consumers benefit by using debt validation and consumer protection laws to dispute a debt.

Contact Credit Bureaus To Freeze Credit

Expert offers advice on how to manage credit card debt during COVID-19 pandemic

Contact the big three credit bureaus Equifax, Experian and TransUnion to request a credit freeze, which will prevent anyone accessing the credit file of your loved one.

Freezing the credit files prevents criminals from opening new credit cards or other accounts using the name and Social Security number of the deceased.

You do not want to deal with identity theft of a loved one several years after they have passed away, says Stephen Lesavich of Lesavich High-Tech Law Group.

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Be Aware Of Possible Disadvantages

Negotiating a credit card debt settlement can have some downsides that you should be aware of before making a decision to do it.

Depending on how it plays out, negotiating a credit card debt settlement can significantly lower your .

Even before you enter into an agreement, companies may close your account or prevent you from using the credit line any further. The process can also temporarily lower your access to capital from other borrowing sources as you are now seen as a bigger risk.

Other lenders may charge you higher interest rates to compensate for your heightened default probability. In some states, your insurance costs for things like automobile insurance might rise. The length and severity of these outcomes will be far worse with a bankruptcy filing, so it can still be worth it to go through with the settlement.

It’s also important to note that forgiven credit card debt can be treated as taxable income. If the total debt forgiven is $600 or more, the lender will give you a Form 1099-C, Cancellation of Debt, to use in your personal tax filing. Do not try to avoid claiming this as the IRS will be notified of it by the lender.

There’s also a possibility that your credit card company may not be willing to entertain or negotiate a credit card debt settlement. If not, it’s time to consider discussing your options with a bankruptcy attorney. In some situations, it’s far easier to rebuild your personal balance sheet after having your liabilities discharged by a judge.

What If Your Debt Is Too Out Of Hand

What happens if your accumulated debt load becomes too large to handle?

If you find yourself paying off credit cards with other credit cards or shuffling around debt payments only to find out your credit cards are maxed out or your mortgage goes unpaid it is past time to look for professional for help.

There are several ways Licensed Insolvency Trustees and credit counsellors can help you handle your debt. All you have to do is recognize you need help and reach out for it. Some of the most common ways professionals like us can help include:

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How Debt Affects Your Credit Scores

The first thing you should understand is that debt has a ripple effect across your entire financial life, including your credit scores.

In this article, well discuss two types of debt: revolving and installment.

  • Revolving debt primarily comes from credit cards where you can carry, or revolve, a balance from month to month. You can borrow as much money as youd like up to a predetermined credit limit, and interest rates are subject to change. Your monthly payment may vary on revolving debt depending upon how much you currently owe.
  • Installment debt comes from mortgages, car loans, student loans, and personal loans. In most cases, the amount of money you borrow, the interest rate, and the size of your monthly payments are fixed at the start.

With both types of debt, you must make payments on time. When you miss a payment, your lender could report it to the credit bureaus a mistake that can stay on your credit reports for seven years. You may also have to pay late fees, which wont impact your credit scores, but can be burdensome nonetheless.

Aside from your payment history, the way each type of debt affects your credit is quite different. With installment debt, like student loans and mortgages, having a high balance doesnt have a big impact on your credit.

Your credit can be negatively affected because of your credit utilization, which is the percentage of available credit youre using. Just know that it carries significant weight in calculating your credit scores.

How Do I Pay Off Debt With Debt Settlement

How to Handle Credit Card Debt During Coronavirus Pandemic â NBC Los ...

Debt settlement is another option you can consider when youre ready to eliminate your credit card debt. This strategy usually works best for people who are already past-due on their credit card payments and can afford to make large, one-time settlement payments to their creditors.

You can settle debts on your own or you can hire a professional debt settlement company to handle the process for you. If you choose to hire an outside party, you should do extensive research to avoid scammers and exorbitant fees.

Be aware that hiring a company to do this is not necessary, and could end up costing you a lot more money. Learn what to watch out for at the FTC Consumer Information website.

  • Step 1: Examine your debts, and determine your ability to repay them over time
  • Step 2: If you think your debts are insurmountable, and youve decided bankruptcy isnt the right response, you can either attempt debt settlement yourself or hire a company. The worse your situation the more leverage you might have, because your creditors will see that theyre less likely to be paid in full

If you go the DIY route:

Or, if you prefer to work with a debt settlement company:

Debt settlement is a negotiation in which a creditor, like a credit card company or collections agency, agrees to accept a partial payment to satisfy your credit card debt rather than the full balance.

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