Unfortunately, credit card debt is a reality for several consumers. The simple fact is, so many people have been affected by the financial recession that we recently faced. However, with the economy slowly starting to get better, more and more people are ready to start working on their debts. But, overwhelming payments can tarnish the great efforts that people make. With that said, you may be looking for the best credit card debt relief option for you.
Because anyone who is facing overwhelming credit card debt has their own unique financial position, it’s impossible for me to give a one size fits all debt relief option. The reality is, you and your personal credit card debt consultant should make that decision together. However, here are the three most popular debt relief options:
Option #1: Credit Card Debt Consolidation
Credit card debt consolidation is one of the most popular option that consumers choose when it comes to dealing with their credit card debt. However, that doesn’t mean that this is YOUR best option. There are 3 different types of credit card debt consolidation, here’s how they work:
- Consolidation By Service Provider: The first option that you will generally come across is consolidation by service provider. This is when you hire a consolidation company to manage and consolidate your debts. In most cases, these companies have pre-negotiated interest rates with most of the major lenders. They generally reduce your interest rates and help you to structure an accelerated payment plan.
- Consolidation By Balance Transfer Credit Card: Another consolidation option that you will come across is called consolidation by balance transfer credit cards. In this option, consumers with excellent credit use balance transfer credit cards to consolidate multiple credit card accounts into one, easy to manage account. The good news is that most of these types of offers come with 0% promotional interest rates as well as incredibly competitive long term interest rates.
- Consolidation By HELOC: Many consumers have made the decision to open HELOCs(Home Equity Lines Of Credit) in an attempt to consolidate credit card debts with long term low interest rates. Generally, I advise against this process. However, in some, very rare cases, this just may be the best option.
Option #2: Credit Card Debt Settlement
Another very popular option for debt relief is credit card debt settlement. Designed for the consumers who have fallen behind on payments to the point of no return, credit card debt consolidation has helped several consumers to avoid bankruptcy! This is a savings and negotiations process that works like this:
- Starting A Savings Account: Most credit card debt consultants will advise using what is called a SPA(Special Purpose Account) to start saving for your settlements. Simply start saving as much as you can each month.
- Negotiations: Once you have enough money saved for the settlement, it’s time to call and negotiate with the lender for a settlement amount. This is a very in depth process. I generally advise the help of a credit card debt specialist for this process.
- Pay The Settled Amount: Finally, pay the agreed upon settlement amount in the time allotted to you and you will be done.
Credit card debt settlement can cause incredible damage to credit scores. Also, if it takes too long to save for your settlement, you can be sued by the lender. Always work with a professional when attempting to settle credit card debts!
Option #3: Credit Card Hardship Programs
Credit card hardship programs are gaining in popularity however are not yet as popular as the above 2 options. I feel this is as a result of the lack of advertising because, in most cases, credit card hardship programs are the best option to get out of credit card debt. Here’s how they work:
- Your Accounts Are Closed: To avoid the possibility in increasing your debts as you make an attempt to pay them off, most lenders will close your credit card account once you are approved for and enrolled in a hardship program.
- Your Interest Rate Is Reduced: To help you afford the payments on your credit card, most lenders will reduce your interest rate. This will ultimately reduce the total amount of money it will take to pay off the debt and allow for reductions in payments.
- You Receive Constant Payment Plan: Finally, instead of charging you payments as a reflection of your balance, the lender will create a constant payment plan for you. These plans are much like the payment plans on secured debts. Your payments will be the same each month and, in most cases, will be designed to help you pay off your entire balance within 60 months or less.