Cutting Credit Card Debt in Half with a Debt Relief Program

If you're finding it difficult to meet your credit obligations, cutting credit card debt in half is an important first step to getting your finances back under control. According to the Federal Reserve's G.19 report on consumer credit, the average family has $14,750 of revolving debt. However, many people owe way over $100,000. Given that the median rate of interest on unpaid credit card debt is 13.67%, well over $13,500 per year goes towards servicing debt, let alone starting to pay it off.

There's no point in burying your head in the sand, urgent action needs to be taken to reduce the amount that you owe your creditors. An important consideration is that cutting credit card debt in half through a debt relief program is classified as a form of taxable indebtedness income. When you're searching for a way to get out of debt, unless your classified as insolvent, this could increase your tax bill. That's why it's important to seek professional advice from a tax advisor before proceeding.

Filing for Chapter 13 Bankruptcy to Get Out of Credit Card Debt

Although the bankruptcy code was tightened in 2005, filing for chapter 7 is still the most effective way eliminating or cutting credit card debt in half. You can become free from debt in less than 6 months. The problem is that most people who have serious debt on their charge cards find it difficult to comply with the means test, largely because their income needs to be below the state median for the last 6 months or they have non-exempt assets. You cannot file for chapter 7 twice in any eight-year period.

However, you're can write-off half of all unsecured debt by filing for chapter 13 bankruptcy. Known as a wage earner's plan, it involves making an affordable monthly payment to your creditors each month for a 3 or 5-year period. According to the United States Courts: "If the debtor's current monthly income is less than the applicable state median, the plan will be for three years." Any debt will be legally eliminated at the end of the term.

Provided that you maintain the repayment schedule, you'll enjoy full court protection from your creditors for the full duration of the agreement. Unlike chapter 7, the information will be recorded for just seven years, not ten. You will experience a considerable credit score drop, but it won't be as serious as if you'd filed for bankruptcy under chapter 7.

Cutting Credit Card Debt in Half with a Debt Settlement Program

If you're looking for an alternative to bankruptcy, a debt settlement plan is considered to be your best option. Most people employ a third party to negotiate with creditors to eliminate up to fifty percent of unsecured debt. You can perform the negotiations yourself, but most people are unable to achieve the same level of success as a professional. You need to choose the best debt settlement company so be sure to perform plenty of research.

After cutting credit card debt in half, you'll then set up a repayment plan to repay the remaining balance over a 12, 24 or 36-month period. The longer the repayment term, the less likely it is to be agreeable to your creditors. Management fees should be taken on a monthly basis, not upfront. Following a ruling by the Federal Trade Commission (FTC), the front-loading of charges became unlawful on the 27 September, 2010.

Sources:

Woolsey, Ben. (Feb 11, 2011). Credit card statistics, industry facts, debt statistics.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 7 May 2011