Paying off the balance on your credit card each month is part of a strong strategy to maintain a top tier credit score. This shows responsible spending habits and financial management. When your balance gets too high and you are unable to make payments on the account, a settlement plan may help you pay off the account. This type of plan may get rid of your debt but it can also hurt your credit score.
Contact Creditor
If you are experiencing a financial hardship and are temporarily unable to make normal payments on your account, it's important to contact your creditor as soon as possible. Your creditor may have hardship programs available that carry temporarily lower payments and a lower interest rate to help pay down your debt while you get your finances in order. This strategy also shows your creditor that you are serious about paying off your debts, which may help you in future dealings with the company.
Making Minimum Payments
Making only the minimum payment on a credit card account maximizes the length of time it takes to pay the bill off. It is also increases the total amount you pay on the account because of the interest rate your credit card company charges you. If your credit card balance is in the thousands of dollars and you can only afford to make the minimum payment on the account, contacting a nonprofit debt management service may be a smart financial move. A debt management service negotiate with all your credit card companies and secure lower interest rates on accounts all while creating a manageable monthly payment plan to pay off your credit card debt. Finding a nonprofit debt management plan is important to ensure you are not charged excessive fees just to get your credit card debt in order.
Debt Settlement
If your credit card account has entered delinquency, you may be approached by your creditor or a collection agency representing them with an offer to settle the debt. A debt settlement pays off your account for less than the total amount owed. If the balance on your credit account is high, a debt settlement could net you a substantial savings and end collection practices against you for that account. A debt settlement does cause some damage to your credit score because you are paying off a debt for less than you owe. You may also have to report the forgiven debt amount as income on your federal taxes if the amount was greater than $600.
Benefits of Paying Debt
Paying off your credit card account on your own cannot negatively impact your credit score. This is the wisest course of action if you are able to pay the debt down quickly by making larger than minimum payments. You must also curb your usage of the card to ensure you're not just running in place with the debt by replacing the debt you pay off each month. Paying off your credit card signals to other creditors that you are able to handle credit responsibly. This may make it easier for you to secure credit in the future and obtain a more favorable interest rate.
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