Help With Credit Card Debt

Reason #: Being Ok With It

The human brain is pretty amazing. It learns to cope and get comfortable or numb with any circumstance after weve been in it for a while.

Once we start carrying a credit card balance, we start to view it as ok, as if its no big deal.

This mindset is one that gets people in and keeps them in credit card debt.

Average Credit Card Debt

Americans collectively have $890 billion in credit card debt. Thats a 13% increase from 2021 and the largest increase in two decades. Consumers paid $120 billion in interest charges or about $1,000 per household. These figures are likely to increase as plastic continues to grow as the preferred method for making purchases among U.S. consumers.

• 70% The number of American adults who have at least one credit card in their name
• 25.6% The average credit utilization rate
• $5,394 The mean credit card limit /li>
• 16.7% The average credit card APR
• $5,221 The average credit card balance per household

Use The Power Of Extra Payments

Do it yourself: Use the calculator on the debt payoff guide to see how extra payments can shorten your payoff time.

Making extra payments each month on your debt can also lower your , which in turn can improve your credit score.

Get inspired: No amount of debt is comfortable for Jackie Beck. When the amount she owed hit $147,000, including a mortgage, student and car loans, and credit cards, she became obsessed with paying it off all of it.

She did so largely by making extra payments toward her bills. I became consumed with paying off my student loan. I earned extra money through online surveys, freelance writing and odd jobs from Craigslist so I could make small additional payments,” she says. “I figured out how much faster Id be done each time I sent in even a tiny payment.

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A Deep Dive On The Minimum Payment Formula

Spending on immediate consumptionwhether on discretionary items or necessitiesbears an important role in how some cardholders slip into long episodes of debt. But cardholders slowness to repay their debt when they have cash available is also a factor behind prolonged borrowing. Here is where the minimum payment formula matters.

Low minimum payments didnt always characterize the U.S. credit card industry. In the days of early consumer adoption and rapid growth during the 1980s and early 1990s minimum payment amounts were substantially highertypically 5 percent outstanding balances plus interest and fees.24 As issuers introduced low-rate introductory offers, reward points, and risk-based pricing to compete for the most creditworthy customers, one of the ways the industry made up for lost revenue was by reducing minimum payment requirements, generating more persistent revolving balances and increasing interest charges.

Using The Avalanche Method To Pay Off Credit Card Debt

Where the snowball method attacks the credit card with the smallest balance, the avalanche method reduces your credit card debt by attacking your credit card that has the highest annual percentage rate or interest rate.

While you use minimum payments to pay against all of your other credit cards, you use as much as you can from your available budget to pay off your high-APR credit card.

Once you have fully paid off the high-APR credit card, you use that same monthly budgeted amount in addition to the monthly minimum payment to pay off the next-highest APR card.

The avalanche method works by striking down the biggest contributor to your increasing credit card debt: interest payments. By paying off your highest APR card, you significantly reduce the amount of interest that you must regularly pay each month.

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Consider A Balance Transfer Credit Card

If you have good-to-excellent credit despite your debt which is possible if youve been making your minimum monthly payments on time and keep your low you may qualify for a 0 percent APR balance transfer offer with a balance transfer credit card.

This zero-interest introductory offer could last anywhere from 12 to 21 months and will let you transfer your higher-interest balances to the new card. Youll save on interest for the duration of the 0 percent period, making it easier and faster to get out of high-interest debt.

You should always pay attention to the interest rate after the promotional period is over, says Justin Zeidman, assistant vice president of open banking at Navy Federal Credit Union. Consider how long it will take to pay off your credit card debt in comparison to the promotional period so you dont get stuck with a higher interest rate after the 0 percent interest period is over.

• Who this strategy is good for: Those who are good at keeping track of credit card payments

Cons Of A Debt Management Program:

• Only applies to unsecured debt: You cant include student loan, mortgage or auto debt.
• Penalty for missing payment: If you miss a payment, your debt management program may be canceled.
• Cards go away: One of the provisions of the program is that you stop using your credit cards.
• Not every company will accept a proposal for reduced interest rates: The smaller banks and possibly some of the department store or gas station card companies dont always accept debt management programs.
• It takes time: Some consumers want a quick solution, and this isnt one. Its set up for 3-5 years, so payments remain at an affordable level, improving your chance to succeed.

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Do You Have Late Payments On Your Credit Card

Schedule a Free Consultation

The purpose of this section is to describe how unsecured creditors, more specifically large creditors, attempt to recover monies owed to them. The comments contained in this section might not apply to small creditors like your dentist, veterinarian, or lawn care company, nor to governments, which often have extraordinary powers when it comes to collecting monies owed to them.

For the first three to six months that your account has not been paid, staff at your creditors in-house collection department will attempt to call you requesting payment of your . During this period, they will likely mail you written notices demanding payment. If you do not pay your account, they will proceed to more aggressive methods.

What Are The Effects Of Reaffirming A Debt

If you reaffirm a debt and fail to make the payments required in the reaffirmation agreement, the creditor can take action against you to recover any property that was given as security for the loan and you may remain personally liable for any remaining debt.

You can voluntarily repay any debt instead of signing a reaffirmation agreement. Reaffirmation agreements must not impose an undue burden on you or your dependents and must be in your best interest. If you decide to sign a reaffirmation agreement, you may cancel it any time before the court issues your discharge order or within sixty days after the reaffirmation agreement was filed with the court, whichever is later

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How To Use The Debt Consolidation Calculator

Step 1: Enter the balances, interest rates and monthly payments you currently make toward your unsecured debts, like credit cards, personal loans and payday loans.

Don’t include secured debts like car loans or low-rate student loans here. There are better ways to manage those debts.

• Total balance: The sum of all your debts or what you owe in total.

• Combined interest rate: Your average weighted interest rate for all the debts you put in the calculator.

• Total monthly payment: The amount you’re paying monthly toward these debts, including interest.

• When you’ll be debt-free: The amount of time until you are debt-free, based on your current balance and monthly payments.

Step 2: Choose your credit score range to see your debt consolidation options, including personal loans. Youll see typical annual percentage rate ranges offered by lenders, along with alternative options for bad credit.

Lenders that offer direct payment to creditors send your loan proceeds directly to your creditors, simplifying the debt payoff process.

Drag the sliders below the table to enter an estimated rate and the loan term you want for the new loan.

Step 3: Look at the comparison between your current debts and the new debt consolidation loan.

Debt consolidation makes the most sense when your new total payment is less than your current total payment and you save interest costs.

How Much Can You Save With Debt Settlement

Creditors are often willing to make considerable concessions through debt settlement. This way, they can recover money from debtors they could not get back otherwise.

How much can you save with debt settlement? To illustrate, consider Dan’s story.*

Dan works hard every day and has always been conscientious about paying his bills on time.

Unfortunately, Dan had an accident last year and the medical bills mounted up quickly. Dan paid his medical bills with a credit card, expecting to use money from an insurance settlement to pay the card off before it became a problem.

The settlement did not come through, and now Dan is struggling to pay the minimum payment each month on a credit card with a balance of $26,000 and an interest rate of 18%.

*Dan is an example of a typical ClearOne client, whose experience is a combination of the thousands of clients who are in the ClearOne program.

This is just one example, but it reflects the overall reality of debt settlement. According to the American Fair Credit Council:

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Can A Collection Agency Sue Me On Behalf Of A Creditor

Suing debtors is not a common activity for collection agencies. Researchers have estimated that collection agencies across Canada sue only about one in 10,000 accounts assigned to them for collection.

The fact that collection agencies do not often sue people does not prevent them from threatening to sue debtors. It is very common for collection agencies, collectors employed by collection agencies, and lawyers working on behalf of collection agencies, to threaten legal action when in fact they have no intention of proceeding.

Coronavirus Credit Card Relief Programs

Many credit card companies are offering some form of financial relief to customers impacted by the coronavirus pandemic.

In order to take advantage of any of these relief programs, youll need to first contact your provider to formally request financial assistance. Be aware, however, that many companies are asking you to first visit their websites or use their mobile apps because theyre experiencing longer-than-normal wait times on the phone.

While itll vary based on the company, here are some of the most common forms of assistance that companies are offering:

Lowering or deferring your monthly minimum payment

Many credit card companies are offering emergency forbearance, which allows you to skip or reduce your payments for a limited period of time. Keep in mind youll need to make up any skipped or reduced payments after your forbearance period ends. When forbearance ends, you won’t be asked to make up missed payments immediately, but you will need to resume making at least your minimum monthly payments, which may have changed.

Waiving or refunding late fees

If you miss a payment, your credit card company would generally charge you a late fee. During the coronavirus pandemic, however, many companies are waiving or refunding late fees, if you request financial relief because of the pandemic.

Reducing your interest rate

Establishing a payment plan to pay off existing balances

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What Are My Short Term Credit Card Debt Solutions

If you have determined that your credit card debt is a short term issue, then you can seek a short term solution to your credit card debt.

Now you will be faced with some decisions about your credit card debt.

If you are unable to make the payments you can choose to:

• Stop making payments on all of your credit cards
• Stop making payments on all but one of your cards to maintain some access to credit
• Use a pre-paid credit card or a Visa / Mastercard debit card.

If you stop paying on your credit card debt, your likely strategy will be to wait for the statue of limitations on debt in your province to expire.

This strategy has some risks and your debt will continue to exist even after limitation period has passed.

After you have missed a few payments you can expect to receive a reminder to make payment.

At first, the reminders will be friendly but if you miss more payments, your credit card company will become more demanding.

Your Account Could Be Assigned To A Collection Agency

If your account remains unpaid for more than six months, then at some future date your creditor might assign your outstanding account to a collection agency for collection.

Large creditors have tens of thousands, and in some cases, hundreds of thousands of outstanding accounts. The most cost-effective way for a creditor to make money on its portfolio of bad credit card debt is to simply farm it out to one or more collection agencies on a commission basis. Here are the three primary activities of collection agencies:

• Attempting to locate current contact information for debtors
• Phoning debtors and making demands for payment
• Sending collection notices to debtors by mail and making demands for payment

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What Are Potential Effects Of A Discharge

The immediate effect of a bankruptcy discharge is that your credit score will plummet and a notation will be added to your credit report saying you failed to pay your debts as agreed. That will stay on your credit report for 7-10 years.

How far your credit score plunges depends on where you stood at the time of the discharge. If you were above 700, for example, figure on a 100 to 150-point drop. If you were at 600, its more likely to be 75-100 point drop.

Solution: Raise The Minimum Payment Formula

To help revolving cardholders pay down their debt more quickly, increase the minimum payment formula. There are a number of approaches issuers could take to implement this. One would be to raise the principal portion in the prevailing formula as a percentage of end-of-statement-period-balances. For example, raising the formula from 1 percent to 2 percent would shorten the time to pay off a $3,000 balance at 18 percent interest from 11.5 years to 7.8 years and save $1,339 in interest for someone making only the minimum payments and no new purchases. The province of Quebec adopted this approach more aggressively when the provincial legislature passed a law to gradually raise its prevailing minimum payment rate from 2 percent to 5 percent of principal by 2025.34

An approach that would eliminate declining payments would be to set the minimum principal portion of payments 1 percent of the total credit line rather than the month-end balance. This would hold the principal portion of minimum payments constant and at an amount equal to that which was found to be affordable to the borrower at the time of account opening. This approach would affect borrowers that were at or close to full utilization the least. Conversely, it would affect borrowers tapping their credit lines for small amounts the most, encouraging them to pay off their debts quickly rather than allowing them to accumulate.

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Getting Started With A Debt Management Plan

If you think that a debt management plan is the solution to your credit card debt, get started by contacting InCharge Debt Solutions.

You can call or apply online. The session with the credit counselor is free and takes from 25 to 40 minutes. The counselor will help you determine if a debt management plan, or some other debt-relief solution, is right for you.

Reason #: Unexpected Expenses

You know the feeling.

Things are moving along. Youre on a solid financial path.

Then all of a sudden, something happens. Car trouble, house trouble, a medical bill. Its something in the thousands that you end up putting on a credit card.

Weve all heard about this, so I wont spend too much time here.

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Will You Waive My Late Fee

Whether you plan to skip a payment or just need a few more days to get the money together, missing a due date can trigger a late fee in addition to interest charges. If you cant avoid missing a payment or paying late, its worth asking for a one-time waiver.

There are acouple other questions worth asking about a late payment, too.

• Will I be charged a penalty APR? Some credit card issuers may raise your interest rate when you miss a payment. The higher interest rate is known as a penalty APR. But if you miss a payment because of the financial impact of COVID-19, you could ask your credit card issuer if it would be willing not to charge a penalty APR due to the situation.
• Will you report my late payment to the credit bureaus? Even if your credit card issuer agrees to waive the late fee and interest charges, it could still report a late payment to the credit bureaus, depending on how late your payment is. When you talk to your card issuer, you should make sure to ask if they intend to do so.

Home Equity Loans Or Lines Of Credit

Similar to loans earmarked for debt consolidation, home equity loans or home equity lines of credit can allow you to put your loan towards existing credit card debt. Given that these loans are secured by your home, you can often have higher loan limits than a personal loan. Of course, the risk involved is that if you are unable to regularly meet the payment terms of your home equity loan or line of credit, the bank can foreclose on your home.

Like a debt consolidation loan, it can be attractive to wipe out your credit card debt all at once through a home equity loan. But, as you take on your monthly loan payment, take care to monitor and limit any of your credit card expenses to be certain that you don’t build another debt that you can’t repay.

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