Solutions for Credit Card Debt Reduction

A popular alternative to paying by cash or check, credit cards allow you to make purchases now and pay them back at a later date. Although federal law places restrictions on credit card fees, it doesn't restrict interest rates. Interest charges cause your credit card debt to climb over time -- leaving you facing a hefty bill. Fortunately, you have options for reducing your credit card debt.

Debt Settlement

Through debt settlement, you pay a percentage of the outstanding credit card balance you owe. Your credit card company then forgives the remaining debt -- writing it off as a tax loss at the end of the year. While collection agencies frequently negotiate debt settlement agreements with consumers, not all credit card companies provide struggling debtors with settlement options. While settling your credit card balance helps you reduce your liability to your creditor, it adversely impacts your credit rating.

Credit Counseling

Credit counselors assist consumers in constructing a budget through which they can successfully pay off debts. If your income does not permit you to pay off overwhelming credit card debts, credit counseling agencies can negotiate with the credit card company or collection agency to reduce your balance or eliminate excess charges, such as late fees. A dedicated credit counselor may even negotiate to have your interest rates temporarily reduced so that you can catch up on your credit card payments.

Balance Transfer

A balance transfer can help you reduce your credit card debt by allowing you to move your balance from your current account to that of a new credit card company. Provided your account is still current and the company you wish to transfer your balance to offers you a lower interest rate, transferring your balance reduces the amount of debt you incur over time. The lower the interest rate, the slower your balance grows.

Before transferring your balance, find out if the new rate you've been quoted is only temporary. A temporary low interest rate will reset to a standard rate within six months to one year, depending on the credit card provider. Balance transfers make a wise financial decision only if the new account's standard interest rate is less than the one your current credit card company provides.

Bankruptcy

Through bankruptcy, you can reduce -- or even eliminate -- your credit card debt. Chapter 7 bankruptcy discharges your liabilities to unsecured creditors, such as credit card companies and collection agencies. The eligibility requirements for filing Chapter 7 vary depending on your area. Chapter 13 bankruptcy, although it requires you to repay your debts, only requires you to repay as much as you reasonably can afford over a three- to five-year period. Thus, Chapter 13 bankruptcy also provides debtors with a way to reduce out of control credit card debt.