If you've dug yourself into a debt hole, you're probably looking for a quick way out. There are many options that can help you eliminate your credit card debt; these methods range from putting together a budget to filing for bankruptcy. One option that falls somewhere in the middle is a credit card settlement.
Credit Card Settlements
Settling with your credit card company is a legal alternative to paying off your debt in full. A settlement involves negotiating a payoff amount that is less than what you currently owe. Though many lawyers and companies offer their expertise in this field, you are free to try to create your own settlement agreement if you choose.
Preparing for Settlement
One of the major negative points regarding debt settlement is that it destroys your credit history and credit score. In order to settle, you need to have some leverage with the credit card company; creating this leverage usually involves missing payments for months at a time. The idea is that the credit card company will settle with you because it would rather get some money than no money, which is what it would get if you filed for bankruptcy. However, skipping these payments will not only hurt your credit, but it will also result in late fees that will cut into your eventual settlement amount.
The Settlement Process
After you've gotten yourself enough leverage to negotiate a settlement, you or your representative can propose a settlement amount to the credit card company. Your initial proposal may get rejected, but you can keep trying as often as you'd like. Once you agree on a settlement amount, you'll pay the credit card company the required amount in a lump sum, and your credit report will indicate that you didn't pay the balance in full. This is a major negative mark that will stay on your credit file for seven years. In addition, you'll be required to pay taxes on any savings you receive from the settlement; you must also pay your attorney or settlement group.
Settlement Alternatives
Credit card settlement is not for everybody. It's an exhaustive process than can ruin your sanity and credit rating. Fortunately, there are alternatives to settlement that don't involve filing for bankruptcy. You can call your credit card company and ask for a payment plan with lowered interest rates. You can also seek credit counseling, which usually results in enrollment in a debt management program that lowers your interest rates, but restricts your ability to use credit. Lastly, you can apply for a consolidation loan, but be careful---it can be very easy to rack your credit cards back up once you've paid them off with the money from your loan.
0 comments:
Post a Comment