Fast Ways to Get Rid of Credit Debt

Credit card debt is one of the easiest types of debt to accrue and can be one of the most difficult types of debt to pay off. Credit cards often have very high interest rates and low minimum payments, which can cause balances to increase over time even if you make payments faithfully. Getting rid of credit card debt quickly will help avoid making costly interest payments.

Tap Into Savings

Perhaps the easiest way to get out of credit debt quickly is to tap into a savings account. A savings account is a safe place to store money and earn a modest amount of interest from a bank, but savings may be better spent paying off high-interest debt. For instance, if you carry a $3,000 credit card balance with a 10 percent interest rate and you have $3,000 in a savings account that pays 2 percent interest, it makes financial sense to pay off the credit card rather than keeping the money in the savings account, since the debt is making you lose money faster than the savings account is earning money.

Budgeting

Another method for paying off credit cards quickly is increasing disposable income through aggressive budgeting. Cutting all unnecessary spending for a month or two, such as going out to eat, shopping for clothes and purchasing expensive drinks or cigarettes on a daily basis, can result in hundreds of dollars of savings each month. Use the extra savings to pay off your credit card.

Tap Into Home Equity

Home equity loans are loans where you trade some of the equity you have built up in a home for cash. Home equity loans are sometimes called second mortgages, since they require you to use your home as collateral for the loan like a mortgage. The interest rates on home equity loans are typically much lower than the rates on credit cards; using a home equity loan to pay off credit cards can transform high-interest credit card debt into a more manageable debt.

Contact Creditors

In some cases, you may be able to reduce credit card debt by negotiating with creditors. If burdensome debt is making it difficult for you to pay a credit card, lenders may be willing to modify the terms of the debt, such as the interest rate or the amount you owe, to help you make payments and avoid bankruptcy. Bankruptcy can be a means to eliminate credit card debt, but it is typically considered an option of last resort since it tends to severely damage credit scores.

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What Will It Do if You Have a Collection Agency on One of Your Credit Reports?

Your credit reports play a vital role in your ability to obtain credit and competitive rates on the loans you seek or currently have. Whenever one of your three consumer credit reports has a negative item on it, this can affect how creditors view your credit worthiness and impact future and current credit terms.

Credit Reports

Every consumer who has ever paid a bill, applied for loan or used any kind of consumer credit has a credit report that details the consumer's history as a user of credit. Three consumer credit bureaus, TransUnion, Equifax and Experian, keep and maintain these reports. Creditors use credit reports to determine if you are a good candidate for a loan or other form of credit.

Score

Your credit report is the basis for companies that determine credit scores. These scores are numerical representations of your trustworthiness as a creditor. While each company has its own way of determining how a collections agency action impacts your credit score, this generally lowers your score significantly. For example, Yahoo Finance reports that a 30-day late payment alone appearing on any one of your reports can lower your credit score 60 to 110 points.

Collections

A collection agency can get involved in your debt at various points in time. Typically, a creditor uses persuasive efforts to try to get you to pay. If these efforts don't work, the creditor may refer or sell the debt to a collection agency. This usually happens after significant time has passed, but the damage done by your late payments before referral to an agency also negatively impacts your report.

Mistakes

Even if a collection agency action appears on your credit report in error, it will negatively affect your credit score. You have the right to demand that the credit bureau remove any errors on your report by contacting either the credit-reporting agency upon whose report the information appears, or by contacting the credit agency itself. You will need to provide written evidence as to why the report is in error to have the mistake corrected.

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Definition of a Consumer Credit Counseling Agency

Consumer Credit Counseling Agencies provide services to consumers overridden with debt. These agencies can and have in the past protected many customers from bankruptcy and serious debt litigation. These companies work with a consumer's lenders to reduce fees, interest rates and payments to come to a workable solution where both parties are satisfied.

Significance

These companies are a vital part of the nation's economy. They help to reduce the number of bankruptcies filed and ensure that lenders are at least partly compensated for what could have been complete losses. They also provide helpful eduction to consumers on financial best practices.

Types

One type of credit counseling service works directly with a customer's lenders. They negotiate to reduce outstanding balances, eliminate late fees and over the limit fees, and work to reduce interest rates. Some credit counseling agencies work with individual creditors and some work to consolidate all creditors into a new loan for a consumer.

Effects

A successful credit counselor will put a borrower on a track to good credit history. By eliminating high interest rates and fees, the agencies can put consumers in a better position to pay down debts, thus improving their credit score and reestablishing the relationship between the customer and lender for future business.

Misconceptions

A common misconception is that credit counseling agents are strictly available to profit from beleaguered customers. Instead, most credit counseling agencies' primary goal is to help customers regain financial stability. There are some agencies that are running for-profit businesses, but there are also many that rely upon government funding to run non-profit organizations.

Warning

Beware of any credit counseling agency that contacts you by phone. Aggressive lenders will try to prey on vulnerable consumers. It's best to contact a financial advisor and do research prior to signing on with any agency.

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The Law on Debt Relief

If you have accumulated a significant amount of credit card debt, there are debt relief options available that can improve your financial situation. Some methods help you reduce your debt load and others help you eliminate it altogether.

Credit Counselors

A consumer credit counseling specialist is trained in debt counseling and reduction. He will help you put together a budget and provide strategies for eliminating your debt.

Credit Counseling Programs

Consumer credit counseling programs allow you to repay a lower percentage of your outstanding balances. The credit counselor contacts each creditor and works out a repayment plan.

Considerations

Before you can file a petition for bankruptcy, you must enter into an approved credit counseling program implemented by a government-approved organization six months prior to the petition filing, according to the Federal Trade Commission.

Chapter 7 Bankruptcy

If you decide to file a chapter 7 bankruptcy you will be able to get a fresh start once you receive a discharge. The bankruptcy trustee will sell all of your assets and forward the proceeds to your creditors.

Chapter 13 Bankruptcy

A chapter 13 bankruptcy allows you to repay your debt over a period of 36 to 60 months. You only repay pennies on the dollar. In many cases you get to keep your assets, such as your home and car. To participate in this is program you must have a reliable, consistent income.

Debt Relief Programs

There are many debt relief companies that will set up repayment plans and help you make settlement arrangements with your creditors. Many of these companies operate for a profit and charge excessive fees for their services.

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How to Reduce Debt Without Bankruptcy

Reducing your debt will help you avoid bankruptcy, which will ruin your credit for seven years or more. Credit card and other debt can quickly escalate out of control so that you cannot even afford to make the minimum payments. High interest rates and late fees can make reducing debt a difficult goal. However, there are several lifestyle changes you can make to help reduce debt.

Instructions

1

Live frugally, and pinch every penny: Clip and use coupons, stop eating out, and commit to purchasing only items you need and not simply desire.

2

Build up an emergency fund while making minimum payments on your credit cards and installment loans. Aim for at least $1,000 in the bank. Only use this for real emergencies, such as medical emergencies and automobile or household repairs that are unavoidable. Having this emergency fund will prevent you from using credit cards to pay for unexpected expenses.

3

Secure a part-time job along with your regular job. You can house-sit, baby-sit, mow lawns, deliver papers or pizzas or get a job in a retail store. Remember that this is not forever, and the extra effort will help you pay off your debts sooner and will relieve the stress. This will give you more motivation and energy toward becoming debt-free or getting your debt to a manageable sum.

4

Downsize to a less expensive home or apartment, and sell any cars that have large monthly payments. Buy a lower-priced vehicle with cash. You can also carpool with your spouse or a coworker. This may cost you more time by having to drop off and pick up each other, but it will eliminate extra car payments.

5

Pay off your smallest credit card first, according to financial adviser, author and radio show host Dave Ramsey. Make the minimum payments on every debt you owe, but any extra cash should go toward paying extra on your smallest debt. Soon you will totally pay off the smallest debt and can double up on the next largest credit card. Ramsey explains that this will have a snowball effect on decreasing your debt over time.

6

Call your credit card company or any place you have debt. According to Credit Cards.com, you should explain that you want to pay off your debt, but your financial situation has changed and you are unable to make the payments in full at this time. The company may waive late fees, freeze your account or agree to take smaller payments over time until you can make the full payments. Showing that you are willing to pay your debts but that it is financially impossible at this time may result in a financial arrangement that works better for you.

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How to Pay Bills That You Can't Meet

Staring at a stack of unpaid bills can be stressful and discouraging. Feeling discouraged may sometimes lead you to feel like your situation is hopeless. Even if you are out of work or between jobs, there are ways to cut corners and come up with some extra cash to help you through your time of transition.

Instructions

1

Map out your financial situation and determine your monthly deficit by writing down all your monthly outgoing expenses on a piece of paper. Add the total outgoing expenses, then write down all incoming money, and total. Subtract your outgoing expenses from your incoming money. If you have a negative number, as a result, this is the amount of money you want to try to come up with to help you meet your monthly needs. For example, if your outgoing expenses came to $3,621 and your income totalled $2,998, you need to come up with $623 to meet your financial obligations.

2




Call a company and see if they have a cheaper or better payment plan.

Cut your budget. The easiest place to save money is by cutting unnecessary expenses out of your budget. If, as a couple, you are eating out twice a week, you can cut that out of your budget and easily save between $200 to $300 per month. If you're already living frugally, you may not have much, if anything, to cut out. Get creative and look at your bills. Are there any companies you've been a customer of for a long time? Call them and ask if they have another plan that might lower your bill. Your phone/internet/cable company is a good place to start.

3

Apply for assistance with some of your bills. Check with your county government to see if the agency has an energy assistance program. Most states have a program called Low Income Home Energy Assistance Program (LIHEAP). If you qualify for energy assistance, you will receive a lump sum payment on your electrical bill and reduced payments for your gas bill. Call your county office to determine the hours in which you can apply as well as what items you need to bring with you at the time of your application. If you have a mortgage, call your mortgage company, explain your financial situation to them, and ask if there's anything they can do to work with you. Your mortgage company will send paperwork for you to fill out to see what kind of assistance you qualify for. Most mortgage companies will make an effort if you show them you are willing to make an effort as well.

4




Sell unused and unwanted items to earn extra cash.

Turn unused and unwanted items into cash. Go through your home, garage and storage place. Set aside any items that are no longer used or needed. Weather permitting, sell them at a garage sale. You can also sell items on eBay, CraigsList or place an ad in your local newspaper. If you have gold jewelry that's broken or missing parts, sell it at one of those stores that buys gold. You can find these in your phone book. Anything and everything you can sell translates into extra cash for you.

5




Dog walking and other odd jobs can help increase your income.

Use your talents and skills to bring in extra money. Are you a great babysitter? Do you enjoy walking dogs? Can you fix things around the house? Call or email friends, family, and neighbors and let them know you're available to do these things. Pick up odd jobs here and there, and the income will add up over the course of the month.

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Regulations to Charge Off a Credit Card

A charged-off account is a credit card or other loan that the lender considers a business loss. After several months of trying to collect even minimum payments from you, the lender gives up, closes your account and lists it on your credit reports as R9 -- for revolving credit charge-off or I9 for installment credit charge-off.

Collection Efforts

You remain liable for the debt even after it has been charged-off. The original creditor may try to collect from you by having its in-house collections team contact you by mail or telephone. Or the creditor may sell the account to a debt collection agency, often for pennies on the dollar. The debt collector can then come after you for the full balance.

Timeline To Charge-Off

There isn't a hard and fast rule regarding when creditors will close your account and list it as charged-off. However, generally, accounts are charged-off after you fall six months behind. There is usually no way to reverse the action, although the creditor could agree to remove the negative mark from your credit reports in exchange for you paying the balance in full. If you pay the charge-off without such an agreement your credit reports will be updated with the notation "paid charge-off."

Statute of Limitations

The debt will not expire on its own, and you could be subjected to collection efforts for a lifetime. However, there are state statute of limitations regarding how long debt collectors have to sue you in court. The length of time varies by the state, but the statute of limitations in most states is six years. The potential for legal action is the debt collector's greatest weapon. A lawsuit could lead to a civil judgment for the full balance plus legal fees, and your wages could be garnished. The debt collector loses that advantage once the statute of limitations expires. The debt collector could still file suit against you, but the case will be dismissed if you show up for the hearing and tell the judge that the statute of limitations on the debt has expired. After that the debt collector could continue trying to collect from you by telephone or mail.

Credit Score

The negative entry on your credit reports will hurt your credit score, although the impact will lessen as the debt ages. It can remain on your reports for up to seven years. Some people with charge-offs that are beyond their state's statute of limitations simply wait for the negative entry to fall off their reports.

Resolution

You can resolve the issue by simply paying the debt -- perhaps for less than the full balance. According to The New York Times, some debt collectors will accept as little as 20 percent of the balance to settle collection accounts, but generally settlements are for about half the balance. It's also important to note that the statute of limitations restarts if you make a partial payment on the debt or if you have a conversation with the debt collector in which you acknowledge that the debt is yours. For example, say the statute of limitations in your state is six years, and for whatever reason you accept the debt collector's offer to make say, a $20 payment on the account. That resets the clock, giving the debt collector another six years to pursue you in court.

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