Legal Ways to Eliminate Credit Card Debt

Several legal options are available for eliminating credit card debt, with personal bankruptcy the most extreme remedy. Chapter 7 bankruptcy allows you to discharge, or eliminate, all of your credit card and other unsecured debt in just a few months. Chapter 13 bankruptcy requires a five-year payment plan based on your income and expenses. Once the five years is up, any remaining unsecured debt will be eliminated. Bankruptcy is effective at eliminating debt, but other options are less damaging to your credit.

Pay In Full

You always have the option to simply pay your debt in full. If you don't have the cash, consider a bill consolidation loan from your bank or credit union, or a home equity loan if you are a homeowner. You'll still have the same amount of debt, but the credit cards will be paid off and your overall monthly payment may be lower.

Debt Management Plans

Nonprofit credit counseling agencies generally administer debt management plans. The agencies have working relationships with the credit card companies and use that to negotiate on your behalf. The agencies will ask the card companies to lower your interest rate, waive fees and reduce your balance by trimming some finance charges. In return, you commit to a four-year plan during which you are placed on a budget and cannot use or apply for credit. You'll send one check a month to the counseling agency covering all your bills. The agency will send individual checks to your creditors. The goal is for you to emerge from the program four years later with your credit card debt eliminated. Find a nonprofit counseling agency in your area by seeking referrals from your bank or credit union. Or seek referrals from community organizations including the United Way or the Urban League.

Debt Settlement

Debt settlement allows to you legally eliminate debt by paying less than the full balance. Credit card companies will often agree to settlements when your account is at least three months behind and is on the verge of being closed and sold to a debt collection agency. The card companies generally will settle for around half the balance and sometimes even less. The "New York Times" reported in 2009 that some card companies were settling for 20 percent of the balance -- a whopping 80 percent savings for you. Inquire about a settlement simply by calling your card company. Generally, the most generous settlement offers are available just before your account is about to be closed and charged off. Most card companies close accounts after six months of missed payments, although that is not a hard rule.