The Benefits of Credit Card Debt Relief Programs
If you’re struggling under a mountain of credit card debt, a debt relief program could be a real lifesaver. These programs help you get out from under all that debt by lowering your interest rates, reducing your monthly payments, or even forgiving a portion of what you owe.
How Debt Relief Programs Work
There are a few main types of credit card debt relief programs:
-Debt management plans: Offered by nonprofit credit counseling agencies, these plans negotiate with your creditors to reduce interest rates and get late fees waived. You make one monthly payment to the agency and they distribute payments to creditors.
Debt consolidation loans: These combine all your credit card balances into one new loan with a lower interest rate. You make fixed monthly payments on the consolidation loan.
Debt settlement: For-profit companies negotiate with creditors to let you pay a lump sum settlement that’s less than your total balance. You first stop paying creditors and save up settlement money.
Bankruptcy: As a last resort, filing Chapter 7 bankruptcy wipes out eligible debt, letting you make a fresh start. Chapter 13 bankruptcy sets up a 5-year repayment plan for debt.The right debt solution depends on factors like your income, assets, credit score and how much debt you have. A credit counselor can review your full financial situation and recommend the best approach.
-Top 5 Benefits of Debt Relief
If you do decide a debt program is your best path forward, here are some major advantages to expect:
1. Lower interest rates
Credit card interest rates average over 19%, which keeps balances growing rapidly. Programs like debt management plans and consolidation loans can slash your rates to around 6% to 8%. This greatly slows down how fast your balance accumulates interest. Making fixed payments gets you closer to zero debt much quicker.
2. Lower monthly payments
Between high credit card interest and late fees, monthly payments can feel crushing. Debt relief programs aim to make payments more affordable so you can actually keep up. Nonprofit credit counseling agencies are especially good at getting creditors to reduce minimum payments. With debt settlement too, you save up lump sums that are often far lower than what you currently pay each month across multiple cards.
3. Get collectors to stop calling
The constant collections calls from creditors can feel harassing, stressful and embarrassing. But most collectors have to stop contacting you once you enroll in a legitimate debt relief program. You get to make one reasonable monthly payment through the program instead of fending off calls from many creditors.
4. Rebuild credit score
As you make consistent on-time payments through a debt management plan, you demonstrate responsible behavior that helps improve your credit. Debt settlement won’t help your score while enrolled since accounts aren’t actively paid. But once settlements are reached and closed out, your score can start recovering.
-5. Debt forgiveness
With debt settlement in particular, creditors agree to accept less than the full amount you owe as payment in full. This wipes out the remaining balance, giving your finances a fresh start. Just beware – the IRS may count forgiven debt as taxable income.
Finding the Right Program
Choosing a trustworthy credit card debt relief company is critical. Be wary of promises that sound too good to be true. According to the FTC, warning signs of a debt relief scam include:
- Charging large upfront fees before providing services
- Guaranteeing they can make debt “go away” quickly
- Telling you to stop communicating with creditors
- Pressuring you to sign up immediately
Nonprofit credit counseling agencies like Money Management International offer safe assistance and charge small or no fees. Reputable for-profit debt settlement companies like Freedom Debt Relief let you enroll without paying fees until after settlements happen.
-Weighing the Drawbacks
While debt relief programs open doors to becoming debt-free, they aren’t perfect solutions. Expect tradeoffs like:
- Payment plans take several years to complete
- Your credit score drops when accounts close
- Any savings from settlements may count as taxable income
- Bankruptcy damages your credit for 7 to 10 years
You’ll also need fiscal discipline to avoid racking up further high-interest debt. Still, if you seriously struggle with debt, the pros often outweigh the cons. Don’t hesitate to call a nonprofit credit counseling agency like GreenPath Financial Wellness if you need guidance on the best debt relief options for your situation. They offer free consultations.With persistence and the right program, you can break free of burdensome credit card debt. The process takes time, but the financial freedom you regain is worth the temporary hassles and sacrifices. Don’t lose hope – debt relief can help you get back on stable financial ground.