Credit card bankruptcy can help clear up your debts, but it will leave a lasting mark on your credit score making it difficult to borrow money in the future. There are alternatives to declaring bankruptcy, which will allow you to pay off your credit card debt and take control of your financial situation.
Debt Settlement
Debt settlement is when you negotiate with your creditors to lower your interest rates, monthly payments or to pay less than you owe on your debts. This option works best when you are already behind on your payments. You can use a debt management program or contact your creditors yourself. When you call your creditors have a lump sum available to offer as settlement for payment in full. Begin by offering a lower amount than you have to pay since the number is negotiated during the call. Do not send the payment in until you have received a letter stating that the payment will be considered payment in full. Any debt that is forgiven is taxable at the end of the year.
Debt Consolidation
A debt consolidation loan will lower the amount you have to pay each month and often lowers the interest rate on your credit card debt. If you find your payments overwhelming then this option can help you change your current situation. This will not have a negative affect on your credit score, though you may have a difficult time qualifying for a debt consolidation loan if you are behind on your payments. If you use a second mortgage or home equity loan you are tying your unsecured credit card debt to your home, and if you cannot make payments on it in the future you may lose your home. Try to obtain an unsecured consolidation loan.
Debt Payment Plan
Another option is to set up an aggressive debt payment plan. First list your debts in order from the highest interest rate to the lowest. This is the order you will pay off your debts. Next you will need to set up a budget and find extra money to apply to your debts each month. You will need to cut your expenses or take on a second job to find the extra money. The more money you can find the sooner you will pay off your debt. Although this plan does require work and sacrifice it is the best option for your credit score.
Making the Choice
Depending on the amount of credit card debt you have, you will need to make the decision that is right for your situation. If the debt takes up more than 50 percent of your income, you may be forced to file bankruptcy, otherwise you can likely turn the situation around. You may use the debt payment plan in conjunction with the other options to clear up the debt as quickly as possible.
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