Although responsible use of credit cards can help build your creditworthiness and purchasing power, credit card debt can quickly become overwhelming if you rely on your cards for vacations, paying bills or everyday purchases. If you have amassed overwhelming credit card debt, you may use certain strategies to erase some or all of your debt.
Debt Settlement
In some cases, credit card lenders may be willing to accept partial payment of your debt as payment in full. A lender's decision to accept a settlement of less than the full balance of your debt erases the unpaid portion of your debt -- the creditor cannot pursue collection of the unpaid amount after accepting a settlement. Credit card lenders are typically more willing to accept a settlement if you are already behind on your payments, because they prefer receiving partial payment to pursuing collection and legal actions if you default on your debt.
Chapter 7 Bankruptcy
If you cannot manage your credit card debt and do not anticipate the ability to catch up your payments in the future, you may opt for Chapter 7 bankruptcy to erase your credit card debt. Chapter 7 bankruptcy permits a fresh financial start by legally relieving you of liability for paying your credit card debts. This strategy also ends creditor calls and letters, and eliminates the risk of wage and bank garnishment resulting from a civil judgment for your debt.
Chapter 13 Bankruptcy
Like Chapter 7 bankruptcy, Chapter 13 bankruptcy stops collection efforts and prevents your credit card lenders from obtaining a judgment against you to recover your credit card balances. This type of bankruptcy involves reorganizing your debts and paying a monthly repayment amount for a period of time determined by the bankruptcy court. After you have made all of your Chapter 13 bankruptcy payments on time for the duration of the repayment plan, the remainder of your credit card debts are erased.
Considerations
Debt erasure strategies may relieve you of the burden of paying your credit card balances in full; however, they typically cause significant damage to your creditworthiness. If you settle a credit card debt, the lender will report to credit bureaus that you settled the debt for less than the full amount -- this report can lower your credit score depending on the number and types of negative entries already in your credit file. Chapter 7 and Chapter 13 bankruptcy also negatively impact your credit score and stay in your credit file for up to 10 years.
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