If Credit Card Relief Programs Arent An Option
If youre dealing with financial hardship because of COVID-19, and are having trouble making monthly payments, but your credit card company doesnt have an option that works for you, there are still things you can do to manage your situation.
Even if you do get some relief, keep in mind that its temporary, and the bills will still be there, and may be worse, once the relief period ends.
No matter what your situation, the number one thing to do is sit down and get a solid understanding of your finances. Make a budget that lists expenses and income. Figure out ways to lower the first category and increase the second.
Keep in mind that interest rates on credit cards are also determined by credit scores and can range from 16% up to the high-20s, so work on using credit cards less and paying them down is a win-win.
Debt management programs, offered by nonprofit credit counseling agencies can provide advice on your budget, how to get credit card payments down and how to improve your credit.
A may also recommend a debt management program as a way to help you reach financial goals. Agencies have agreements with major card companies to reduce rates for those enrolled in their programs. The counselor will offer you the lower rate, and you can decide if it works for you. You make one monthly payment to the credit counseling agency, and the agency disburses the money to each credit card company in agreed upon amounts.
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Depending on your income and assets, you may qualify for the Supplemental Nutrition Assistance Program, or Food Stamps. Reducing your monthly food expenditures can help you cut your overall budget and free up money for other necessities. If you qualify, benefits are based on household size and range from $100-$900 per month. Find out more about SNAP eligibility requirements and benefits.
Implement A Debt Reduction Plan
You basically strategically arrange your bills and make the largest payments possible on one debt at a time. You find as much cash flow as possible in your budget by eliminating expenses, then target each debt successively.
We offer resources that describe how to implement an effective debt reduction plan.
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Why Is It Bad To Max Out Your Credit Card
When you hit your cards limit, the high balance may cause your credit score to drop, your minimum payments to increase and could lead to getting denied for a mortgage or a car loan.
Although you may qualify for a high credit card limit its best to keep your available credit balance as high as possible. When total available credit is too low, banks take that as a sign you already have more debt than you can handle.
The Risks Of Debt Settlement
Debt settlement comes with significant risks that you should be aware of before entering into an agreement. These risks include:
- Damage to your credit. Debt settlement companies often encourage you to stop making payments to your creditors. This can severely damage your credit. It can also cause you to accrue interest, late fees and penalties on your existing debt, pushing you deeper into debt. You could receive calls from creditors or, in some cases, be sued for repayment.
- High costs. Programs for debt settlement may require you to put money away for many months or years before your debt is settled. This can be very costly and, if you cant afford the monthly payments, you may have to drop out of the program. Ensure you can truly afford to put away a significant amount of cash per month before entering into a debt settlement program.
- No guarantee. Your creditors are not obligated to negotiate with you or a debt settlement company. Theres a chance that the debt settlement company you hire wont be able to settle all of your debts, leaving you with growing debt during and after the process.
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How Do Credit Consolidation Companies Work
The term credit consolidation companies” covers a lot of ground in the debt-relief industry. They range from giant national banks to tiny nonprofit counseling agencies, with several stops in between and offer many forms of .
To simplify things, it is easiest to divide credit consolidation companies into two categories:
- Those who consolidate debt with a loan based on your credit score
- Those who consolidate debt without a loan and dont use a credit score at all
Banks, credit unions, online lenders and credit card companies fall into the first group. They offer debt consolidation loans or personal loans you repay in monthly installments over a 3-5 year time frame.
They start by reviewing your income, expenses and credit score to determine how creditworthy you are. Your credit score is the key number in that equation. The higher, the better. Anything above 700 and you should get an affordable interest rate on your loan. Anything below that and you will pay a much higher interest rate or possibly not qualify for a loan at all if your score has dipped below 620.
The second category companies who provide without a loan belongs to nonprofit credit counseling agencies like InCharge Debt Solutions. InCharge credit counselors look at your income and expenses, but do not take the credit score into account, when assessing your options.
Negotiating Debt Forgiveness With A Collection Agency
If payments are overdue by six months or more, the credit card company may have assigned your case to a collection agency. These companies specialize in collecting delinquent debts, usually on behalf of the original creditor.
Collection agencies get paid according to how much money they get from you, so expect them to use hardball tactics. This is where consumer protection law the FDCPA comes into play.
The FDCPA applies to that are working on behalf of other companies and protects consumers in the following ways:
Knowing these rights can help you establish ground rules that allow you to deal with the collection agency in an orderly manner.
Because the collection agency gets paid according to how much of the debt they collect, your communication with them should focus on proving to them the limits of what youre able to pay. Once they know theres no more money to tap into, theyd rather collect a partial amount and get paid than continue pursuing you without getting paid.
However, don’t make any partial payments until a complete settlement has been agreed to in writing.
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Debt Settlement Vs Bankruptcy
When the process works as intended, debt settlement can benefit everyone involved. Consumers get out of debt and save money, debt settlement firms earn money for providing a valuable service, and creditors receive more than they would if the consumer stopped paying altogether or entered chapter 7 bankruptcy. Chapter 7 bankruptcy involves liquidating the debtors non-exempt assets and using the proceeds to repay creditors. Exempt assets vary by state but often include household and personal possessions, a certain amount of home equity, retirement accounts, and a vehicle.
Compared to debt settlement, Detweiler says, if a consumer is eligible for chapter 7 bankruptcy, it may be a faster option. It is a legal process that can stop collection calls and lawsuits. Debt settlement doesn’t offer those guarantees. Still, he adds, there may be a variety of reasons why chapter 7 may not be a good option. A consumer may have to surrender property they may feel they need to keep. Or they may not want their financial troubles to be a matter of public record. Consumers could also find their employment options limited if they declare bankruptcy, as some professions evaluate workers credit histories.
Chapter 7 bankruptcy can be over and done after three to six months, versus years for debt settlement. It can be less stressful and may allow your credit score to recover faster, though bankruptcy will remain on your credit report for 10 years.
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Shop For Cards That Your Better Credit Deserves
Find a credit card with a lower APR or a rewards program that matches your hobbies and cut up your paid-off, high-APR cards. With the higher credit scores that come with debt repayment, you’ll begin to earn approval for rewards cards that offer either cash back, travel discounts, or gifts. The true sign of great credit is when you spend less than what you earn.
National Debt Relief: Best For Debt Settlement
National Debt Relief is our top pick for the best debt relief service of 2022. National Debt Relief was founded in New York in 2009. Since then, it has become one of the largest and most respected debt settlement companies in the nation with accreditations from the American Fair Credit Council and the International Association of Professional Debt Arbitrators as well as an impressive A+ BBB rating.
In line with its mission of helping clients reduce their unsecured debt, National Debt Relief has a track record for settling many clients debts for just 30% of their total debt. The company is also known for its overall transparency, outstanding customer service, and money-back guarantee.
National Debt Relief provides a wide array of debt settlement services, including business debt, credit cards, lines of credit, medical bills, personal loans, and student debt. However, the company does not handle mortgage loans and back taxes.
Enrolling in one of the National Debt Relief programs is easy you can sign up over the phone. Next, youll receive a free consultation with one of the companys debt counselors. After discussing your situation and determining a solution, youll set aside a specific amount of money in a dedicated account each month. You will use this money to settle your debt for less than what you owe.
In the meantime, the company will help coordinate your efforts and negotiate with creditors on your behalf.
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A Good Repayment Program Can Help Your Bad Credit
Though debt settlement and bankruptcy are some of the more appealing options to those looking to get out of debt quickly, they arent for everyone especially anyone who wishes to maintain or improve their current credit score. If youre trying to repay your credit card debt and rebuild your credit, a manageable payment plan may be the best way to go.
Whether you are able to negotiate lower interest rates, an extended payment term, lowered fees, or some combination thereof, keeping to your new payment plan is the key to successfully improve your credit situation. Making your agreed-upon payments, on time, in full every month will show that you can reliably, and responsibly, make payments toward your debt. It will also help illustrate your determination to meet your credit obligation, helping to decrease your overall appearance of risk to future lenders.
How To Choose A Debt Settlement Company
Before you decide on a debt settlement service as the answer to your need for debt relief, review your options. There may be several less costly and less risky alternatives that better fit your situation.
Debt settlement is a different beast than debt management or debt consolidation, all three of which fall under the larger umbrella of debt relief. With both debt consolidation and debt management, you repay the full principal owed. Only in debt settlement, which may also be referred to as debt forgiveness, are you paying back less than the principal amount owedwhich is where several major differences arise, as discussed here.
If you choose to go the debt settlement route, its essential to vet any company youre considering for legitimacy. Check that the company has the necessary licenses to operate and make sure watchdog institutions like the AFCC accredit it.
Heres what to look for when choosing a debt settlement company:
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What Not To Do
Sometimes overwhelming debt comes with devastating swiftness a health crisis, unemployment or a natural disaster. Or maybe it came a little at a time, and now creditors and collection agencies are pressing you to pay, and you just cant.
If youre feeling overwhelmed by debt, here are some things not to do:
Dont pay a secured debt late in order to pay an unsecured one . You could lose the collateral that secures that debt .
Dont borrow against the equity in your home. Youre putting your home at risk of foreclosure and you may be turning unsecured debt that could be wiped out in bankruptcy into secured debt that cant.
Things To Consider When Choosing The Best Debt Relief Companies
Type of Debt
Some of the best debt relief companies only deal with certain debt types, like credit card debt or medical bills. If you owe something specific like business debts or private student loans, you may have to look a little harder for a debt settlement company that will handle those types of debt.
Amount of Debt
Most of the best debt relief companies require you to have a minimum debt of at least $10,000. Therefore, the amount you owe may determine your eligibility for a debt settlement program.
Better Business Bureau Rating
You can glean a lot about a debt settlement company from its Better Business Bureau rating. Almost every company receives some customer complaints from time to time. Still, if a debt settlement company has generated severalespecially if the complaints reveal a patternthen you should look for a different debt settlement provider.
In 2010, the Federal Trade Commission banned companies that conduct business over the phone, including debt relief companies, from charging up-front fees. Since there are no guarantees when it comes to debt relief, no reputable debt settlement company would dare charge a fee before serving you.
A debt settlement company may not succeed at reducing your debt, and the best debt settlement companies will make that clear.
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How Debt Relief Works In Canada
Canada debt relief programs operate on the principle that if you are struggling, you should not have to pay more to your creditors than what is absolutely required. Many Canadians do not know that creditors are often willing to consider debts paid in full when they reach an agreement with one of their debtors to settle a debt for less than what is actually owed. After all, why pay back the full $15,000 in principal plus additional interest when you might be able to settle the debt for $6,000 or less?Debt relief Canada is designed for those with a large amount of credit card debt and other debts that are not secured by property or other collateral. A debt service provider that is licensed by the government will work with your creditors to get them to come to a settlement agreement that is in your best interest and allows you to reduce a significant portion of your debt load without the harsh effects of bankruptcy on your credit.With the right debt solution, you can:
- Reduce a significant portion of your debt balance
- Combine all your payments into one lower monthly payment
- Get out of debt in as little as 24 48 months
- Become debt free without filing bankruptcy
Debt Relief Options For Insolvency
Depending on your circumstances and the types of debts you have, you may need legal help to resolve your debt problems. Two options are available to all Canadians, a Consumer Proposal and Bankruptcy.
Once it is agreed to, a consumer proposal is a legal agreement between you and your creditors to settle your debts. The process in Canada is governed by the Bankruptcy & Insolvency Act and allows you to repay a portion of your unsecured debts over a period of no more than 5 years.
A lot of debt relief companies and agencies have heavily advertised and over promoted the benefits of consumer proposals vs bankruptcy you can learn more about the differences between the two here.
Bankruptcy is a legal process that someone can enter into when they are not able to pay their debts, and they do not have any assets they can sell to pay their creditors. Someone in this position is said to be insolvent. The legal process for bankruptcy in Canada is governed by the Bankruptcy & Insolvency Act.
Declaring Bankruptcy or filing a Consumer Proposal does not always provide debt relief from all of your debts. Before you choose an extreme solution to deal with your debts, make sure that you have considered all of your options. Even if you think that you are completely insolvent, you should look at alternatives to bankruptcy first to make sure that you have considered all of your options. A certified credit counsellor can help you do this.
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