One of your debt relief options may be a debt management program (DMP) managed by Consumer Debt Counselors. If you are having trouble paying your current bills, a DMP allows you to negotiate a new payment plan with your existing creditors. Some advantages of a debt management program may include:
Payments that work with your budget.
Lower interest rates and/or lower payments.
No more collections calls.
No more over-limit or late fees.
Bringing your account current.
Consolidating debts into one simple monthly payment.
Financial education to help you rebuild your finances successfully.
When you meet with your credit counselor, you will have the opportunity to review your financial health, including your budget and what resources you have available to pay off your debt. They will help you make a plan to pay your debt off, which may include a DMP.
If you choose to enroll in a DMP, your existing lines of credit will be frozen in exchange for the lower interest rates and/or payments that the plan offers. Consumer Debt Counselors keeps all participation confidential and we do not notify any credit reporting bureau of your participation in a debt management plan. Your credit counselor can help you assess whether changes in your credit utilization will impact your credit score based on your personal situation.
Most DMP are five year plans to get out of debt, but the timeline depends on your total debt and your ability to pay it down. If you are ever in a position to pay extra money towards your DMP, it will help you pay your creditors faster. During the repayment period, your counselor will help you learn key money management skills so that you can rebuild your financial footing on solid ground after you complete your debt management program.
Debt consolidation involves taking out a new loan to pay off your existing debts. It can streamline your payments, and it may allow you to get a lower interest rate or lower payment than what you're currently paying.
Debt consolidation will not fix underlying money management problems. If you consolidate your debt and then run up your original lines of credit again, you can be in a much worse situation. One of our certified credit counselors can provide a no-cost assessment of your finances to help you determine whether consolidation is the right option for you.
"Do It Yourself" programs are not impossible, but they do require discipline and organization. If you decide to get out of debt on your own, here are a few tips:
Make and stick to a budget. Track where your money goes each month, eliminate expenses where you can and put everything you can towards paying down your debt.
Try to reduce your interest rates. If you have a good payment history, your credit card companies may be willing to work with you.
Inquire about hardship programs. Many creditors have internal hardship programs for customers who are struggling with debt. These may, for example, freeze your line of credit and lower your interest payment. Be sure to understand the terms of any program that you sign up for and be aware that, by admitting that you are having trouble meeting your debt obligations, you may jeopardize your available credit with that institution.
A certified credit counselor may be able to give you more personalized guidance. There is never any commitment or cost to receive financial counseling from our team of certified counselors.
Debt settlement is potentially the riskiest option to reduce debt. Instead of paying the full amount of the debt over however long the debt's repayment period may be, a debt settlement offers a percentage of the amount owed in exchange for settling the debt on the spot.
Debt settlement is harmful to your credit score, which can affect your ability to get loans, new lines of credit, approval for an apartment and more. In some cases it may be the best option. A certified credit counselor can help you assess your ongoing income to see whether a less severe resolution is available.
While you can choose to try to negotiate with your creditors yourself, many people go through debt settlement companies, which is where the risk comes in. In addition to the burden of choosing a reputable company to work with, you also have to pay the settlement company for a set period of time before the company will even begin to negotiate with your creditors. They want the security of your payment up front. In the meantime, your creditors are not receiving payment and may be unwilling to negotiate with the settlement company even after the funds have been collected.
A failed debt settlement plan can leave you in a much worse place than you were when you started the process.
Bankruptcy is the most drastic debt reduction option, but in rare cases bankruptcy may be the best option for you. A certified credit counselor can help you develop a budget to see whether bankruptcy can be avoided.
Bankruptcy will negatively impact your credit score. This can affect your ability to get loans, new lines of credit, approval for an apartment and more.
If you do decide to pursue a bankruptcy, be sure to consult a reputable bankruptcy attorney.
Our certified credit counselors can help you break the cycle of debt and learn how to responsibly use credit and manage a household budget.
We want you to be comfortable and confident in your decision to work with us. We are an accredited member of the Better Business Bureau with an A+ rating and a member in good standing of the National Foundation for Credit Counseling (NFCC).
Talking to one of our certified counselors for financial counseling is always free. Join us for a no-cost, risk-free confidential consultation to discuss your financial outlook. During your session, you will receive a personalized analysis of your finances, discuss your options and develop a plan of action for tackling issues that are important to you.
There’s no one right solution to solve credit card debt problems. Every financial situation is different, so the solution that what works for one credit user may not be the best choice for someone else. It’s best if you understand all your options so you can compare them to find the best debt relief option for your needs and goals. Just know that you’re not alone in your battles with credit card debt. The average household that uses credit cards typically owes over $15,000. In most states, people generally utilize more than 30% of their available credit, which lowers credit scores. And if you have bad credit, you are limited in the number of options you can use to find debt relief. So, the more debt you need to pay back means the less likely it is that you’ll be able to use do-it-yourself solutions successfully.
“Debt relief” refers to any solution that allows you to pay off debt more efficiently when traditional monthly payments aren’t working. There is a range of ways to do this. Some are do-it-yourself, meaning you won’t need professional help. Others require new financing, such as getting a loan or credit card that makes it easier to pay off debt. Then you have options that are professionally assisted. Do-it-yourself and financing options can be a great way to try your hand at tackling debt. But if you find that you cannot manage witling down debt on your own, try seeking the help of a professional. Do-it-yourself debt relief options. There are several ways that you can try your hand at getting out of debt without professional assistance. Most of them involve taking out new financing, such as a debt consolidation loan or balance transfer credit card. But there are a few ways to seek debt relief without new financing that you can try on your own.
There are many different ways that you can use to try and solve credit card debt problems on your own. But if you’ve exhausted all the do-it-yourself options and you are still having trouble paying off your debt, you may need to call in professionals. Professional help can often be the fastest, easiest, and most cost-effective means of eliminating credit card debt. You’ve got two options: Enroll in debt management or debt settlement program. With a debt management program, you pay back everything you owe to avoid credit damage. Then you reduce or eliminate interest charges, so you can get out of debt faster, and often with lower monthly payments. By contrast, debt settlement gets you out of debt for a percentage of what you owe. It’s usually the quickest and cheapest option to eliminate debt. However, it can do significant damage to your credit score.
Government credit card debt relief programs
There’s a pretty common misconception that there is a federal credit card debt relief government program that consumers can use to get out of debt. For the record, there is no grant or any federally sponsored repayment plan that you can use to pay off your credit card debts. That being said, the federal government does oversee and regulate the debt relief industry, which is where some of the confusion about government debt relief programs comes from.
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 what’s 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. They’d charged setup fees that would be as high as 25-40% of the debt enrolled in some cases. They’d 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.
The Uniform Debt-Management Services Act
This was a federal law passed in 2005 that governs the credit counseling and debt management service industry. As a result of the act, credit counseling agencies must register as a consumer debt management service in each state where they want to work. They must also provide full disclosures about their debt management plan and a penalty-free three-day cancellation policy.
Nonprofit credit counseling and grants
One possible source of confusion regarding government grants for eliminating credit card debt may come from how not-for-profit credit counseling agencies operate. These nonprofit agencies qualify for the 501(c)3 status, which makes them nonprofit organizations that exist to aid consumers. This helps ensure that these companies always operate in consumers’ best interest, instead of trying to turn a profit.
In order to fund their operations, these companies get grants from credit card companies to provide financial education to consumers. Credit card companies basically pay companies that prove they exist to help their customers. This allows nonprofit credit counseling agencies to provide debt management services at a relatively low cost.
Delinquency occurs when you fail to make your minimum required credit card payment. Delinquency is just a fancy term for being past due or overdue. What ends up happening when you fall behind on payments is a countdown to charge offs.
A charge-off occurs when a credit card company or lender closes an account as a result of nonpayment. That means the company has basically written off the debt as a loss because they have little to no expectation of receiving payments. If you’re having trouble making your payments, you should contact your creditors immediately, ideally before you miss the first payment. You may be able to arrange deferment or forbearance, that would pause or reduce your payments while you get back on your feet. This will help you avoid credit damage and closed accounts. Delinquent and charged-off accounts do serious damage to your credit that can be hard to undo once it’s occurred. Even paying a charged-off account in full may not lead to any notable change in your credit score. With that in mind, debt negotiation is often your best bet. You can ask for forgiveness. However, it is rare that creditors will agree to forgive your balance outright with no payment in exchange.
Credit card features that work against you
Though you may think making minimum payments will help you make more affordable payments, you’re actually flushing money down the drain in the long run. How so? Well, credit card minimum payments aren’t designed to help you get out of debt quicker. In fact, they are designed to make banks or credit card companies profit.
Credit card interest (APR)
Credit card interest, or annual percentage rate (APR), is how lenders make a profit. When you make a minimum payment, or if you fail to make any payments at the end of the month, the lender is allowed to charge interest on the borrowed amount. So, though it may feel like you are dwindling down your debts, you are actually putting more money toward interest charges rather than your principal amount. However, you can negotiate with your lender to try and ease the burden of debt:
Ask for deferment: You can explain your situation and give a set time of when you will be able to resume repayments. Make sure the time frame is realistic, otherwise you may negotiate your way out of an extension.
Ask for forbearance: If your lender won’t pay your payments, you can try for forbearance. This works similarly to deferment except that you reduce your payments for a time instead of pausing them. Be transparent about your financial struggles and reasonably explain what you are able to afford. And be willing to go through the numbers with your lender to help prove your case.
Ask for a workout arrangement: As a last resort, you can seek a workout arrangement. This basically means your creditor or lender will freeze your account, so you won’t even be able to charge that account. In exchange, you’ll have your payments, interest, and penalties reduced or eliminated.
Minimum payment traps
Credit card minimum payments are unfortunately not designed to help the consumer. In fact, they are designed to keep you in debt longer so credit card companies can make profits. When you only make minimum payments on your debts, it can take you years if not decades to pay off even one account. Never be satisfied with minimum payments. Always pay as much as possible, ideally paying off the balance in full every month. But if you can’t pay it all off, pay as much as you can comfortably afford.
Avoiding credit card fees
All credit cards typically come with fees. To name a few, there are annual fees, balance transfer fees, foreign transaction fees, and late payment fees. And there are a few ways you can get around these fees. With annuals fees, choose cards that don’t have annual fees. Otherwise, consider calling the issue and asking to have it waived.When it comes to balance transfer fees, credit cards with promotional offerings are the way to go. If you find that you travel to foreign countries often, choose a credit card that doesn’t charge 3% fees on all foreign transactions. And for late payments, the simplest way to avoid them is to set reminders to pay your bills on time. But if you’ve made a mistake, you can call your creditor and ask to have the fee waived.
Higher credit limits
Sometimes people seek out higher credit limits to lower their credit utilization rate. For example, if you have a credit limit of $10,000 and you have $9,000 in outstanding debt, then your credit utilization rate is 90% ($9,000 divided by $10,000). And if you were to get a higher credit limit to $15,000 with the same $9,000 outstanding balance, your credit utilization rate would drop to 60%.This can be a bad idea for people who have had trouble handling their debts responsibly. A higher credit limit will only become a source of constant temptation if you already have bad habits. So, it would be in your best interest to keep your credit lines as low as possible to avoid backsliding.
Credit card basics – getting the most out of your cards
Credit cards can be extremely useful financial tools. But when they are misused, they quickly lead to financial distress. Once you’ve received the debt relief you need to pay off your debts, you can either swear off using credit cards or you can develop better credit habits