What Is Credit Card Debt Relief and Is it a Good Idea?

credit card debt relief

If you are one of the people in the country who struggle with high-interest debt, you are not alone! Interest rates on credit cards in 2024 often top 20%, making it difficult for many people to afford more than minimum payments. But minimum payments may barely dent the principal, making it impossible to pay off credit cards for years.

A potential solution for some consumers is credit card debt relief, but what is it, and is it a good idea? Learn all about credit card debt relief in this article and contact one of our loan professionals if you have questions.

How Does Credit Card Debt Relief Work?

Credit card debt relief is a general term that describes various ways to make credit card payments more affordable so you can eventually get rid of your debt. Credit card debt relief could involve a replacement loan that reduces the interest rate or changes the repayment term. Some programs may even modify the amount of debt that you owe.

If you decide on one of the many types of credit card debt relief, you should make sure you understand what the payment structure is. Also, be sure that you make all payments on time so you don’t default on your plan.

Whether you should try credit card relief depends on many factors, including your income, amount of debt, and how far behind you are on payments. If you have little prospect of catching up on your debts and are even considering bankruptcy, it may be time to seriously think about credit card debt relief.

Types of Credit Card Debt Relief

There are many types of credit card debt relief you may have heard about. Let’s take a look at some of the most common types:

Credit Card Debt Consolidation

Debt consolidation combines several credit card debts into one account. The money you get from a credit card debt consolidation loan is used to pay the current account balances. Instead of doing several monthly payments to pay your credit cards, you make a single monthly payment.

Qualifying for debt consolidation means making an application for new credit and meeting their requirements for the loan. This can be difficult but not impossible if you have poor credit.

If the debt is mostly credit cards, you could consolidate the debt with a balance transfer offer from another credit card, if you qualify. Some cards may have a 0% interest offer for a year or 18 months. If you can qualify for this type of card, this can be a fantastic option.

Credit Card Debt Counseling

You can have a credit counselor help you with your finances, and how you manage money and credit. After going over your finances, the counselor will work with you to make a personal plan for paying down your debt and managing money. A credit counselor may work for free through a nonprofit group.

Credit Card Debt Settlement

A credit card debt settlement company will negotiate with the credit card companies and collectors to settle what you owe for less. This can sound like the best option, but there are downsides.

First, you don’t know if every credit card company will agree to settle the debt. But if the do give their okay, the companies could tell you to stop paying the credit card company and put the funds into an account run by the debt settlement company.

You should carefully read the agreement you sign from the debt settlement company before agreeing to their program. You also should look for debt settlement companies that are highly regarded by BBB to ensure that your funds will be used to settle your debt. These companies also charge high fees.

Credit Card Debt Forgiveness

Debt forgiveness for credit card debt is when the lender erases some or all of what you owe. The debt settlement company could negotiate a lower payment to close the account. Some lenders will approach you with offers to settle the debt if you get behind on payments. Generally, they may extend offers after you have not made three or four payments.

When considering credit card debt forgiveness, some individuals may believe that there are government initiatives designed to alleviate debt burdens. However, there are no government-sponsored programs specifically tailored for credit card debt relief. If you encounter a solicitation promoting a government program for debt relief, it’s advisable to exercise caution before engaging with such a company.

Nevertheless, the silver lining is that credit card debt forgiveness does exist, albeit not through government channels. While it’s improbable for any credit card issuer to completely erase all of your debt outside of bankruptcy proceedings, it’s possible to negotiate a settlement with your creditors where they agree to forgive a portion of the outstanding balance. Furthermore, individuals struggling to meet their credit card obligations may be eligible for debt forgiveness.

You also can approach the lender yourself and see if you can get them to offer a debt forgiveness program.

How Credit Card Debt Relief Affects Your Credit

Before starting on credit card debt relief options, you should understand how the program you choose could affect your credit score. Any time you try to settle debt for less than what you owe, there will be a negative effect on your credit score. However, the hit to your credit may only be for a few months or a year.

Having a lower credit score can be a problem, but there are upsides as well. Getting your debt under control with a debt relief program may give you a short-term credit hit, but your credit score will recover. Once the program is complete and your debt is paid off, you will be able to have a higher credit score again.

If you continue to struggle with debt and do not sign up for a debt relief plan, you may have to eventually consider bankruptcy. Bankruptcy is a legitimate financial tool that can get you out of debt for good and give you a fresh start. But declaring bankruptcy is a serious step and the hit to your credit can last for as long as 10 years.

If you want to get a mortgage you should consolidate your credit card debt rather than seek debt relief, because most banks and lenders will consider many debt relief options like bankruptcy and deny your home loan application. Consolidating debt with a personal loan would be wise to do prior to applying for a home loan.

Summary on Relief for Credit Card Debt

If you decide to go through a credit card debt relief program, you will eventually be free of high-interest debt. It is important to use this fresh start correctly and avoid financial problems again. Otherwise, you could be in the same situation in a few years. Make sure you have a monthly budget and stick to it. Also, develop an emergency fund with two or three months of expenses so you can absorb a financial blow without resorting to credit cards.

If you are ready to get started on a credit card debt relief program, our loan professionals can offer you many excellent options, so contact us today!


Debt Resource Links:

See the Federal Trade Commission website for wise counsel on how to get out of debt.

Learn more about Credit Counseling from the CFPB.

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