Although there are no easy answers, it is possible to get out of credit card debt with a debt free solution, such as a debt management plan, chapter 7 bankruptcy or a debt settlement program.
What to Do when Unable to Pay Credit Card Debt
It is important to seek professional advice before proceeding with a debt relief program as it may not be the most appropriate form of credit card debt help. For example, a debt management plan and debt settlement program are only the right debt free plan if the consumer has some disposable income to offer creditors each month. Similarly, filing chapter 7 bankruptcy is not an effective way of negotiating small unpaid balances. Many struggling consumers will be able to balance income and expenditure with better budgeting.
Why Creditors Allow People to Remove Debt
Eliminating debt with a debt free plan may seem like a bad result for the creditor, but only chapter 7 bankruptcy actually is. The majority of financial institutions sell-on debt to collections agencies for just cents on the dollar so, if they are able to recover just 50% of this sum, it represents an excellent profit. If an account is current and up-to-date, creditors won't agree to a debt reduction. In order to increase the likelihood of acceptance, the account will need to have been defaulted on and be in a delinquent state.
Get Out of Credit Card Debt with a Debt Management Plan
The debt management plan isn't really way to eliminate debt quickly, it is more concerned with improving affordability for struggling borrowers. The client makes a single, affordable payment to an intermediary and they distribute the proceeds to creditors on a pro rata basis. Although creditors may freeze further interest and charges, they are under no legal obligation to do so. Payments will continue to be made until the balance is completely cleared. The management fee is usually in the region of 15%.
Remove Debt Fast with a Debt Settlement Program
Unlike a debt management plan, a debt settlement program involves a reduction to the principal. In certain cases, an intermediary is able to agree a debt reduction of up to 50%. The remainder will be repaid over the next 12, 24 or 36 months. The agreement is not legally binding and the debt write-off won't take place until the final repayment to the debt free plan has been made. The management fee is also 15% and should be taken from each monthly payment, not in advance.
File Bankruptcy when Unable to Pay Credit Card Debt
Chapter 7 bankruptcy provides a way to eliminate debt in as little as 4 months. It shouldn't be perceived as an easy way out because there are a number of negative implications, but it is ideal for consumers who have high debts and don't have enough money to offer an alternative to bankruptcy. The laws were changed in 2005 to prevent the system being abused so those in a position to offer creditors money because their income is above the state median will only be able to proceed with chapter 13 bankruptcy. Many consumers use a bankruptcy attorney because the rules are complex.
Debt Free Solutions and Credit Scores
Although most people assume that using a debt free plan when unable to pay credit card debt leads to a lower credit score, this isn't necessarily the case. The majority of consumers who enter a debt relief program already have a very bad credit rating. In many case, eliminating unsecured debt could actually help. Poor credit will show on a personal credit report for a period of not less than 7 years. In the case of chapter 7 bankruptcy, it will display for 10 years. However, there are a number of steps that can be taken to get a better credit score after the debt solution has run its course