Credit Card Debt Reduction Programs

There are several avenues for reducing your credit card debt, with pros and cons to each approach. Someone with extreme financial problems might opt for protection under bankruptcy. Others may choose long-term debt workout strategies that could take years to complete. Whatever the strategy, emerging from a ton of credit card debt likely will require determination and patience.

Debt Management Plans

Debt management plans are usually handled by nonprofit credit counseling agencies, including organizations affiliated with Consumer Credit Counseling Service. Listings for the agencies are available in telephone directories. The debt management plans are simple. You make one monthly payment to the credit counseling service, and the service then sends checks to all your creditors. You are asked to stay in the program for about four years, and to refrain from using credit or applying for new credit during that time. Your credit card debt will be reduced by your monthly payments, and the counseling agency will help more of it go toward the principal balance by asking your card companies to lower your interest rate and reverse charges for some fees, including late payment fees and over-the-limit fees.

Debt Settlement

Debt settlement allows you to pay off your credit cards for less than the full amount owed. The Federal Trade Commission warns that you should handle your own debt settlements and stay away from for-profit agencies. The FTC says the agencies are expensive and sometimes fail to deliver on their promises. That could lead you with even more debt than you originally had. Self-directed debt settlement requires you to contact your card companies individually to negotiate payoffs. Generally the card companies will consider settlement offers after you have fallen four or five months behind and the account is on the verge of being sold to a collection agency. According to a 1999 New York Times story, debt collectors are willing to settle your debt for as little as 20 percent of the balance, although settlements for around half are more common.

Bankruptcy

Bankruptcy usually requires the help of an experienced bankruptcy attorney, although you can do it yourself. There are two forms of bankruptcy--Chapter 7 and Chapter 13. There are certain income requirements and asset considerations--such as real estate--for Chapter 7, which is the quickest and easiest form of bankruptcy, and not all people will qualify. You can get rid of debt through Chapter 7 in just several months, while Chapter 13 requires a five-year repayment plan. Most bankruptcy attorneys offer free initial consultations, and the sessions can be helpful even if you plan to handle the filing yourself.