Credit Card Debt Relief: What Are My Options?

Credit Card Debt Relief: What Are My Options?
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Climbing out of credit card debt can feel like climbing a slippery slope. You might diligently pay something toward your balances each month, then a family need or national crisis arises and the next thing you know, you’re charging again just to cover the basics of living. You’re not alone. Debt.org indicates that only about ​50%​ of Americans who hold credit cards pay off their balances every month. You can take heart in knowing that numerous credit card debt relief options are available to you.

What Not to Do

It can feel like you and your lender are just handing the same money back and forth between each other when you make payments then charge again, and, in fact, that’s not far from the truth. The problem is that your lender adds on interest when it gives the money back to you, so your overall debt is actually growing.

It’s critical that you resist throwing your hands up in the air and walking away from the whole snarled mess, even briefly. Paying ​30 days​ late will hurt your credit score, and you’ll probably find a late fee added on to your balance. Your interest rate can be expected to increase after ​60 days​, and your lender will eventually write the debt off as a loss after ​180 days​ – in fact, it’s required to do so. But this doesn’t make it go away. You’ll still owe it, and your credit will have taken some major thumps through all this besides. A charge-off will mostly remain on your credit report for ​seven years​.

Negotiate With Your Lenders Directly

Consider reaching out to your credit card companies if you find yourself struggling to make even minimum payments. Make sure you have all your necessary financial information at your fingertips: what happened to cause your financial stress, the amount of your total monthly bills, and your total available income. Know how much you can afford to pay each month, and make sure the figure is realistic. You’ll want to be sure you can stick with any plan that’s agreed upon.

Now you have two options: Ask what the company can do for you, or propose your own modified payment arrangements.

Many companies already have programs in place for just this sort of eventuality. Be sure you understand all the terms if one is offered to you. How will interest be charged and how long can you expect to hope for these adjusted terms to remain in effect? You might also want to ask if the lender can find it in its heart to take it easy on your credit score in the meantime. This kind of relief isn’t unheard of.

Phone numbers and other contact information should be available on your statements, or even on the backs of your cards. You can also check the company’s website for contact information. Don’t be deterred if your company has already written off your debt. You’re still liable for it and they still want to be paid, so they’re likely to work with you.

Debt Settlement Programs

You might consider enlisting the help of a debt settlement program if negotiation just isn’t your strong suit. There are companies out there that will negotiate on your behalf, but their goal is to settle your debt – essentially pay something toward it to make it go away, although not the entire balance you owe.

This isn’t the same as arranging for temporarily adjusted payment terms until you get on your feet again. The program will probably advise you to stop making your monthly payments before or while the settlement process is underway, and this can hurt your credit score regardless of the outcome. Negotiations become difficult if not impossible if your account is current and in good standing.

And here’s another catch: Your balance must be paid off in one lump sum, not over time, so you’ll be obligated to save enough to cover that lump sum either prior to the beginning of negotiations or during their course. The money is typically held by the settlement company in an escrow account so it’s available to your credit card companies when and if negotiations reach a happy ending.

Freedom Debt Relief is one such program. It’s been around, helping consumers, since ​2002​, and it’s a member of the International Association of Professional Debt Arbitrators, as well as the American Fair Credit Council. Freedom Debt Relief warns right upfront that your credit might well be affected. The extent depends on how healthy your score is at the time you enroll for help and stop making payments. The company deals predominantly with credit card debts, as well as with medical bills and unsecured personal loans.

Freedom doesn’t make any guarantees regarding what percentage it might settle your debts for because this can depend on your personal circumstances, but it won’t be ​100 percent​. The unpaid or forgiven part of your balance will most likely be charged off, and this will affect your credit score, too. Fees typically run from ​15​ to ​25 percent​ of your debt, and they’re payable at the time your settlement is resolved.

Expect Some Harassment From Your Creditors

Federal law typically protects you against taking abuse from your creditors if you can’t pay your balances, but this isn’t to say that you won’t receive some unpleasant contact if you don’t make at least minimum payments on your cards each month. And the law only protects you against some forms of bullying.

Creditors are perfectly free to call you or otherwise contact you to ask for payment, and they almost certainly will. They can sue you if you don’t pay after a period of time has passed and no resolution has been reached – they’ve effectively heard nothing from you or your representative at all about how you want to resolve your debt. Your wages can be garnished and liens can be placed on your property if their lawsuits are successful.

Your best defense against all this is to make at least minimum payments if at all possible. Yes, you’re just treading water until you can work out some other solution, but it can prevent the worst from happening. Minimum payments typically run about ​2​ to ​3 percent​ of your credit card balance. It can be helpful to send at least some money, even if it’s less than your minimum payments. Even this might forestall more serious collection efforts and make your credit card companies a little more amenable to working out a solution.

2020/2021 Pandemic Relief

All these rules and options assume that the nation isn’t caught up in the middle of an economic crisis. The Consumer Financial Protection Bureau indicates that many lenders have been more willing to work with customers whose financial woes are a direct result of the ​2020​ coronavirus pandemic, but you’ll have to reach out to them and ask for help. You might consider doing this on their websites if you can’t get through by phone, depending on the status of the virus when you call and how tied up phone lines might be at the time.

The ​CARES Act of 2020​ also controls what your lenders can report to the credit agencies if you do receive some sort of relief due to the coronavirus.