Negotiate Lower Rates With Your Creditors
A lower rate means more of each payment you make can go towards the debt instead of accrued interest. This does accelerate repayment, especially if you make larger payments.
Your chances of a successful negotiation increase if:
- Youre not behind on your payments
- Your credit score increased since you opened the account
- Youve been a loyal customer for a number of years
If you are not successful negotiating on your own, then that may be a sign you need the help of professional credit counseling services. Having a team of experienced negotiators on your side with established relationships with creditors can go a long way in making sure you get the results you want.
Ask Questions About The Credit Card Relief Packages They Offer
While your credit card company may offer up one or more options, have a list of questions prepared in advance. You want to make sure youre completely comfortable with the terms before you agree to these options.
Here are key questions to ask:
Note: that the recently passed Coronavirus Aid, Relief, and Economic Security Act places special requirements on companies that report your payment information to credit reporting agencies if they provide payment relief due to the coronavirus pandemic.
- Will I lose the ability to charge anything to my card if I enroll or request relief?
Get A Written Copy Of Your Agreement
If you choose to move forward with a financial relief option, its important to understand the terms of the agreement before agreeing to anything. Once youve accepted a relief option, make sure to get a copy of the agreement in writing.
During the relief period, you want to make sure to look at your statement each month for any errors or inaccuracies, and if you see anything, make sure to refer back to the agreement so you can dispute it.
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What Is Debt Forgiveness
Debt forgiveness happens when a lender forgives either all or some of a borrowers outstanding balance on their loan or credit account. For a creditor to erase a portion of the debt or the entirety of debt owed, typically the borrower must qualify for a special program.
While this sounds like an ideal debt solution, debt forgiveness is not a get-out-of-jail-free card. Lets take a closer look at how debt forgiveness works across various debt types and the pros and cons of this process.
Whats The Best Way To Pay Off Credit Card Debt
There are several different options for getting rid of credit card debt some of which you might want to avoid. Each has its own strengths and weaknesses and will involve some sort of a trade-off. Getting out of debt quickly and with minimal out-of-pocket costs will mean more damage to your credit score. Some of the in-between methods require having a good credit score, while others require you to be at financial rock bottom.
Figuring out which approach to use boils down to these main factors:
- The amount of debt you have
- How much damage to your credit youre willing to take
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Nonprofit Credit Counseling And Grants
One possible source of the 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 5013 status, making them nonprofit organizations that exist to help consumers. This helps ensure that these companies always operate in consumers best interest, instead of in the interest of turning 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.
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.
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Debt settlement programs and assistance with back taxes
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Free consultation
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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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Know Your Debt Collection Rights
If you have a debt in collection or a collector is attempting to contact you, it can make a tense time feel even more stressful.
Its important to first verify their identity to make sure its a legitimate collector, but you also have a number of rights and collectors can work with you on realistic repayment plans.
What You Need To Get Started
Before you decide on a strategy, youll need to do some homework.
- Calculate which fees youll pay. If you decide to try to do it yourself, youll need time to research negotiating tactics and contact your creditors. Balance transfer credit cards could include a balance transfer fee from 3% to 5%. And a debt consolidation loan could involve origination fees and a high APR.
- Request debt validation. If youve been contacted by debt collection agencies, ask them to send your a debt validation letter to ensure that the information they have is accurate.
- Make a list of which credit card issuers, creditors and debt collectors youre currently paying, and how much. If your debts are in collections, make sure your payments are being sent to the right place. Use this information to figure out how much you can afford to pay each month.
- Research any tax implications. If your debts are settled or you file for bankruptcy, there could be ramifications.
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Statute Of Limitations On Credit Card Debt
The statute of limitations on debt is a protective measure for consumers that limits the window of time where a creditor could file a lawsuit against you to get the money you owe. Once the allowed timeframe has passed, typically 3-6 years, those debtors can no longer take you to court over the unpaid debt which becomes time-barred.
This statute applies to all types of debt such as mortgage debt, auto loan debt, medical debt, and private student loan debt in addition to credit card debt. The exact time frame can vary by state, as can the circumstances of when that countdown timer begins. Be mindful that making a payment towards the overdue debt or even just acknowledging that you owe it can cause the timeframe to restart. Contact your state attorney generals office to discover the specifics for your state.
When Debt Settlement Is An Option
If you can no longer make regular, full payments on your debt, or youre not sure if youll be able to make future payments, then settling your debt can be a good option. However, you need to have enough money on hand, otherwise creditors will reject any settlement request they determine is less profitable. You also need to be well-prepared with a truthful and persuasive argument about why they should accept what youre offering over the alternative, which is collecting the full amount of what you owe.
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Is Refinancing Right For You
When refinancing may be a good move
- Youre financially secure with stable employment and solid credit score or cosigner
- You currently have a high-interest rate
- You can lower the amount of interest paid over the life of the loan
- Your goal is to eliminate debt as soon as possible
When refinancing may be a bad move
- You have an unstable income or employment situation
- You plan to utilize an income-driven repayment plan for your federal loans
- You intend to take advantage of federal loan forgiveness
- Youre nearing the end of your loans repayment
Types Of Credit Card Debt Relief Options
Debt relief refers to any solution that allows you to pay off debt more efficiently when traditional monthly payments arent working. From DIY credit card debt solutions to hiring professionals to negotiate with credit card issuers on your behalf, theres a range of options to choose from that can vary in terms of involvement, how much is paid back, and damage to your credit score.
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Are There Grants To Pay Off Debt
Government and other relief programs offer grants money that doesnt have to be paid back to help with living expenses and more, for those who qualify. While there are no government debt relief grants, there is free money to pay off debt in that it will help you pay bills, giving you more income to pay on credit card and other debt.
The biggest grant the government offers may be housing vouchers for those who qualify. The local housing authority pays your landlord directly. Other government programs that provide long-term and temporary financial help for bills include the Low Income Home Energy Assistance Program , Temporary Assistance for Needy Families , the Special Supplemental Nutrition Program for Women, Infants and Children , help to pay student loans, and more. Well look at these in more depth below, including how to find them.
Be wary of offers to buy lists of government grant programs. They are usually frauds. There is no government program for credit card debt relief and legitimate debt settlement and relief programs operate by strict rules.
How To Avoid Credit Card Debt
Trying to avoid credit card debt in the future? No need to cut up your credit cards and swear off plastic for good. Credit cards can be extremely useful financial tools as long as you know how to use them. There are four key things to keep in mind when trying to use credit cards to your best advantage.
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An Example To Bring Cirpa To Life
To bring the CIRPA proposal to life, assume Karen has a $6,000 balance on her credit card with a 25 percent nominal interest rate . When her statement comes, she would normally owe $125 in interest.
Under CIRPA, the nominal interest rate would be capped based on negotiations between the government and banks. Normally, credit cards are considered unsecured loans because there is no collateral if a consumer defaults . Unsecured loans, therefore, tend to have high interest rates credit card interest rates range from 9 to 29 percent. However, given that with CIRPA the majority of the interest charge is backed by the government, the risk borne by the credit card companies is substantially lower and a lower interest rate would be justifiable.
Lets assume that the negotiated interest rate cap is 12 percent under CIRPA. In this case, the interest charge on Karens credit card would be $60. The government would pay 70 percent, or $42. Karen would be responsible for the remaining 30 percent, or $18, which she could defer. Ordinarily, credit cards have a minimum payment of at least 1 percent of the balance, but CIRPA would allow Karen to defer this $60 minimum payment too.
Copyright: Shahar Ziv
Both Karen and the bank benefit from this arrangement. Karen has reduced interest obligations and can preserve cash flow without immediate bills while the bank reduces the likelihood of default and is receiving regular payments from the government in excess of minimum amounts due.
Debt Settlement Has Risks
Although a debt settlement company may be able to settle one or more of your debts, consider the risks associated with these programs before you sign up:
1. These programs often require that you deposit money in a special savings account for 36 months or more before all your debts will be settled. Many people have trouble making these payments long enough to get all of their debts settled. They drop out the programs as a result. Before you sign up for a debt settlement program, review your budget carefully to make sure you are financially capable of setting aside the required monthly amounts for the full length of the program.
2. Your creditors have no obligation to agree to negotiate a settlement of the amount you owe. So there is a chance that your debt settlement company will not be able to settle some of your debts even if you set aside the monthly amounts the program requires. Debt settlement companies also often try to negotiate smaller debts first, leaving interest and fees on large debts to grow.
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Talk With Nonprofit Debt Counseling Company
Talk to a nonprofit debt counseling company about a debt management plan that allows you to pay your credit cards in full, but at a reduced interest rate, or with fees waived, or both. Because they know their mutual clients are being coached through challenging times with honorable intentions, credit card companies work hand-in-glove with credit counselors to offer you an affordable monthly payment that eliminates debt in 3-5 years.
Beware, most of all, debt settlement companies that claim they can eliminate some or all of your unsecured debt. These oftentimes are scammers who are playing chicken with your credit rating.
Declaring bankruptcy can help people out of a big financial jam if all else fails, offering a second chance. A judge and court trustee examine your assets and liabilities and the court decides whether to discharge the unsecured debts, so that youre no longer obligated to pay them, or dismiss the case if it believes you have enough assets to pay your bills. There are two personal bankruptcy options available.
Chapter 13 bankruptcy gives you a chance to keep your property and reorganize your finances so you can pay off your debt. The process, however, is much longer .
Other Debt Relief Options
Working with a debt settlement company is just one option for dealing with your debt. You also could: negotiate directly with your credit card company, work with a credit counselor, or consider bankruptcy.
Talk with your credit card company, even if you have been turned down before. Rather than pay a company to talk to your creditor on your behalf, remember that you can do it yourself for free. You can find the telephone number on your card or your statement. Be persistent and polite. Keep good records of your debts, so that when you do reach the credit card company, you can explain your situation. Your goal is to work out a modified payment plan that reduces your payments to a level you can manage.
If you donât pay on your debt for 180 days, your creditor will write your debt off as a loss your credit score will take a big hit, and you still will owe the debt. Creditors often are willing to negotiate with you even after they write your debt off as a loss.
Contact a credit counselor. Reputable can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
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Get Debt Assistance From A Non
If you feel like youre drowning in debt and dont know where to turn, American Consumer Credit Counseling can provide expert debt assistance. We are a non-profit organization dedicated to helping consumers solve their and find a way out of debt. Our free credit counseling services and affordable debt assistance programs are designed to get you out of debt faster usually within five years. Our highly trained and certified counselors are available six days a week to answer your questions and help you take the first steps on your journey out of debt. We offer a wide variety of educational resources and tools to help you improve your financial skills, and because were a non-profit, were able to keep our fees among the lowest in the industry. Contact us today to learn more about our debt assistance programs.
Borrowing Against A Life Insurance Policy
If you have a life insurance policy that has cash value, then you can usually borrow against it. But just because you can doesnt mean that you should. If you take money out, you effectively take out a loan against your insurance policy. You make a new debt with a whole new set of problems.
If you dont pay the money back or die before its paid off, then the insurer will take out the amount owed plus interest. In other words, your family will have less life insurance to help them live after youre gone. That money is there to provide your family with a financial safety net in case the worst happens. You dont want to do anything that will weaken that safety net.
Should I Cash Out My Whole Life Insurance Policy to Pay Off Debt? »
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