Settling Credit Card Debt with a Debt Solution

Settling credit card debt debt with a debt solution is an important priority for millions of Americans. In a report by the U.S. Congress' Joint Economic Committee called "Vicious Cycle: How Unfair Credit Card Company Practices Are Squeezing Consumers and Undermining the Recovery." in May 2009, it was stated that: "As household wealth has declined in the downturn, more American families are facing financial distress due to high debt burdens. In 2007, before the recession began, 14.7 percent of U.S. families had debt exceeding 40 percent of their income." This excessively high income-to-debt ratio clearly isn't sustainable in the long-term.

Settling Credit Card Debt

It is possible to alleviate the pressure and stress that financial difficulties bring through a credit card debt solution. Possibilities include a debt settlement program, debt management plan or by filing for bankruptcy. These methods aim to tackle money problems through either a write-off of some of the principal and/or a reduction in monthly payments. Whilst your FICO score will fall, you will benefit from a lower income-to-debt ratio and greater affordability.

Debt Management Program

Settling credit card debt with a Debt Management Program may not involve a write-off of any of the principal, but it may be possible to freeze further charges and interest payments. The focus is on preventing harassment from collection agencies and making debt repayments more affordable. An intermediary will analyse your personal finances to see what you are able to realistically offer creditors each month. You will make this payment to the debt management company and they disseminate the proceeds under this credit card debt solution.


Debt Settlement Programs

This credit card debt solution involves an intermediary negotiating with creditors to write-off up to 50% of the principal. Future payments are then restructured over a period of 12 to 36 months in order to ensure that they are now affordable to you. Avoid debt settlement companies that front-load fees (charge them up-front); instead seek a provider that takes its cut from monthly contributions. This will help to ensure that the amount owed does not increase. It will also help prevent further problems should you decide that settling credit card debt by this method is not for you.

Filing for Bankruptcy

Settling credit card debt under chapter 7 could allow you to become debt-free in just 4 to 6 months. Since the bankruptcy laws were reformed in 2005, your income will need to be below the state median and non-exempt assets (valuable collections, luxury car etc) cannot be excluded from the arrangement. This has meant that most people who are unable to comply turn to chapter 13, which involves making a payment to a trustee for a period of 3 to 5 years.

A debt solution, such as a debt settlement program, debt management plan or by filing for bankruptcy can help alleviate financial difficulties. Before deciding which method is most appropriate for settling credit card debt, always consult a debt counselor. Changing credit card debt solution later on can be both a time consuming and costly exercise.

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.