How to Settle Credit Card Debt and Avoid Bankruptcy

Since bankruptcy stays on your credit report for as long as 10 years and creates a host of other financial problems, avoid bankruptcy if at all possible. If you cannot keep up with your debt payments, there are some alternatives to bankruptcy that may make sense for you. While each strategy may have pluses and minuses, all may be able to help you avoid filing for bankruptcy.

Instructions

1

Make a lump-sum settlement offer. Oftentimes, the best way to settle your credit card debt is to deal with your creditors directly. Tell them you are having trouble making payments and see whether they are receptive to any kind of settlement offer. Typically, if you offer an upfront lump-sum payment, your creditors may be more willing to reduce the amount of your outstanding debt and consider it paid in full with your lump-sum payment. Generally, you will get better offers if you are already behind on your payments, as creditors may fear that you will ultimately file for bankruptcy.

2

Ask your creditors for a lower interest rate. While creditors may be reluctant to accept a lump-sum offer of less than your full balance, they may be more willing to knock down your interest rate by a few percentage points. While not as effective as settling your debt with a lump-sum payment, a reduction in your interest rate can allow you to pay off your debt faster and at less cost, while avoiding the credit report damage that a pure settlement offer may cause.

3

Consolidate your debt. If you can't strike a deal with your own creditors, you may be able to find additional loans at lower interest rates than you are currently paying. If you can consolidate your high-interest debt into this lower-interest loan, you can pay off your debt faster and avoid bankruptcy.

4

Enter a debt management program. A debt management program is essentially a settlement that a third party negotiates on your behalf. Once the settlement company gets your original creditor to agree to the terms of a settlement, you send your monthly payment to the debt management company, which pays your creditor on your behalf. If you go the debt management route, the Federal Trade Commission advises you to be on the lookout for unscrupulous companies that charge high fees.