If you have major credit card debt, you are paying hundreds of dollars in interest every month. You may be wondering how to reduce this commitment and begin to improve not only your credit rating, but your style and standard of living. With extremely high interest rates on most credit cards, it is the only way for many people to ever pay these lingering debts down.
Misconceptions
Credit card debt can be negotiated with your credit card company. However, you cannot reduce your own interest rates if you do not meet the requirements set forth by the credit card company. Debt consolidation companies can reduce your interest rate by paying off your credit cards with a loan, then offering you lower monthly payments or reduced interest charges; however, this does not eliminate your debt. You just pay less interest every month, and therefore pay it down faster.
The Facts
Credit card companies earn money by charging you interest on the money they loan to you through the extended credit. The interest rate they charge can be as high as 30 percent or more. Typically more than half of your monthly payment goes to interest. This means it could take years to pay off a simple $2,000 balance, with thousands spent on interest payments over the course of that time. If you cannot make your payments, you can apply for a hardship program, which allows you to pay off your credit card bills without interest in some cases. You can also refuse to make your payments, and let the entire account charge off. At this point you can negotiate with the credit card company to pay the entire account off for less than half the total balance. Instead of letting the account go to a collection agency (which pays pennies on the dollar to the credit card company for the right to collect the debt, and then tries to collect money from you), the credit card company will usually negotiate a price with you.
Risk Factors
When you let a credit card bill charge off, the credit card company reports it to the major reporting agencies as a charge-off, balance unpaid or settled. This mark remains on your credit history for seven years and can prevent you from getting low-interest credit cards, loans and other financial services.
Benefits
A single mark on your credit report may not be as harmful as the credit companies would have you believe. The extra cash you have in hand can help you pay off other credit cards and reduce your overall debt-to-credit ratio, which could actually help your score and make up for this single charge-off. Most times, these charge-offs can be easily explained to a loan officer, and as long as you have a good work history, they will give you the loan.
Significance
Negotiating credit card debt can be your path to more financial freedom. If you do not plan on relying on loans for a mortgage, or more credit cards, negotiating your way out of your credit card debt is a very smart move. It saves you from being strapped in to monthly payments, gives you more cash right in hand to pay other bills and might be more than worth the mark it leaves on your credit report.
Expert Insight
0 comments:
Post a Comment