There are times when you may feel like you’re drowning in credit card debt. It seems like the minimums are always higher than what you can pay, and one late payment can send your interest rates skyrocketing. Remarkably though, settling credit card debt isn’t the first thing people think of when they want to get out of debt.
It’s an intimidating thought that the people who loaned you money can come after you to take it back. But, there are times when settling credit card debt is the best option for your situation. So if you get caught in such a scenario, don’t hesitate to look for an appropriate credit card debt relief program.
What is Credit Card Debt Settlement?
Simply stated, you’ll negotiate with your creditors to lower the amount you owe on an outstanding credit card balance. You might have little or no hope of paying off that debt, but by settling the debt, you avoid bankruptcy and damage to your credit score.
When you first begin negotiating with a creditor, you should find out whether they would accept a settlement. Some creditors won’t settle for anything less than the full amount, while some may be willing to negotiate and allow you to pay off only a portion of what you owe.
Who Offers Debt Settlement
Professional debt settlement is usually done by a credit card debt relief program company, such as Freedom Debt Relief. An agent of the company will contact creditors to negotiate more favorable repayment terms in exchange for a one time payment in full of a mutually agreed upon amount on your behalf.
Why Bother With Debt Settlement
Once a debt has been turned over to a collection agency, it becomes an even greater burden on your shoulders. The longer that the debt remains unpaid, the bigger the balances will get due to mounting fees and interest.
If you’re getting calls every day from collectors, your debt may already be in collections. Sometimes, the only way out is to negotiate a settlement on the debt so that it’s no longer an issue for you.
What Are the Benefits of Debt Settlement?
Many people who choose credit card debt relief normally enjoy some or all of these benefits:
You Save Face by Avoiding Bankruptcy: Bankruptcy is a black mark on your credit report that can stay with you for up to 10 years. Settling the debt instead of filing for bankruptcy keeps your good credit history intact.
You Can Pay a Lower Amount Than What You Owe: Since most people don’t have the money to settle the full amount, settling for less is a great option when negotiating with creditors or debt settlement companies.
You Pay Less in Interest Over Time: When your bill gets handed off from one creditor to another, it may end up with a high-interest rate. Settling the debt means that you only have to pay the reduced balance instead of all of the extra fees and charges that go along with your original bill.
There Are Caveats
Keep in mind that using debt settlement may damage your credit score. Some creditors report forgiven debt to the IRS as a loss, which will cause the agency to consider that amount income and tax you on it. There are a few other concerns to consider as well, but all in all, settling credit card debt can be a solid path to a debt free life.