There are numerous problems that can result from carrying excessive credit card debt. Fortunately, if you find yourself feeling overwhelmed by your debt burden, there are an array of programs to help you pay off your outstanding balances and put you back on track financially.
Credit Counseling
A credit counseling program can help you resolve your debt issues by working with your creditors to lower interest rates and eliminate late fees. If you have been falling behind on your credit cards, you may find that you are paying interest rates of 29 percent or higher. Counseling agencies can often work with your creditors to get the rates lowered to the 6 percent to 10 percent range, depending on the creditor. The agency will also take a single monthly payment from you and disburse payment to your creditors. You may also receive financial planning education as part of the process. he downside is that the creditors that accept the enrollment request may close your accounts indefinitely, as well as require that you do not open any new lines of credit while on the program.
Consolidation Loans
If you find yourself with multiple credit cards that are maxed out and accruing high interest charges, a consolidation loan may be an effective solution. In a debt consolidation loan, you take a loan out to pay off all of your credit card balances. These loans can carry significantly lower interest rates than your credit cards, and you make one single monthly payment. Consolidation loans may be available from banks, third parties specializing in extending these types of loans or peer-to- peer lending networks. The danger is reloading the cards you paid off with the loan, resulting in you becoming even deeper in debt and unable to service your consolidation payment and monthly minimums on your reloaded credit cards.
Debt Settlement
When you decide to use debt settlement or negotiation to deal with your credit card debt, you aim to offer a one-time payoff to the creditor to settle the account in full. The amount offered is often much less than the available balance. This can be a method to put your debt to rest in one quick swoop. This approach can be done on your own or with the help of a third party that usually assesses program fees and contingency fees based on the amount of debt they saved you. The downside of debt settlement is having a seriously maimed credit profile, as your accounts will be listed as charged-off on your credit report. These marks can potentially remain on your report for up to seven years and hinder your ability to obtain new credit on favorable terms. Your creditor may also issue you a 1099 form, noting the canceled debt amount as income, which is taxable by the IRS.
Budgeting
Paying down your debt is simply a result of spending less than you earn and using excess cash to pay down your credit card balances. If you can properly budget your finances, identifying expenses you can reduce, as well as understanding exactly how much you are able to commit towards paying down your debt each month, you will be successful. List your income and expenses and start taking control of your finances. You may wish to consider budgeting software or online tools to help organize your finances or enlisting the help of a mentor to help keep you on track. Establishing and following a budget will help you pay down your bills without any of the downside of other programs available to lower your debt. Additionally, you will find that staying debt free involves budgeting regardless of the program you choose.
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