Does most of your credit cards’ minimum monthly payment go towards paying the interest? You should consider credit card debt settlement in such a case. Now the question arises why settling the credit card debt makes sense? Settling your credit card debt would entail contacting all the credit card companies to whom you owe money and negotiating with them to reduce the debt.
The first question that arises would be: why will the credit card company reduce the debt? The answer is simple. Many debtors who are over the head in the “debt” waters may consider declaring themselves as bankrupt. This would mean that the credit card companies would lose their entire amount. Rather than losing all the money, they would prefer to settle for a sum that’s less than the total amount. Some credit card companies reduce the debts by as much as 60%.
The debtors, in turn, are rescued from the situation wherein they would have to declare bankruptcy and face ruinous credit reports. The debt settlement could be done through a payment plan spanning from three to five years.
The credit card debt settlement could be either done by the individual or through a debt settlement company. The advantages of settling the credit card debt through a settlement company are as follows:
They employ professionals who are adept at negotiation. Thus chances that one will be able to get a satisfactory settlement are very high.
They save the individual the time and effort required in the negotiation process.
The disadvantage of hiring a settlement company is that the fees that they charge are usually very high. A few of these companies charge their fees upfront, irrespective of whether they are successful in settling the debts or not. Others charge part of the fees upfront and the remainder after the settlement is complete.
Credit Card Debt Settlement: Factors To Consider
One should also be very cautious about the company that one employs, as there are numerous fraudulent companies in the market. It is advisable to check with the Better Business Bureau if the company is legitimate and reputable.
Any unpaid debt above $600 is liable to be taxed. The IRS considers such an amount as an income.
Even after an agreement has been made, until the debt is actually settled, the creditor can sue the debtor. Similarly, the debt can also be turned over to a collection agency at any point until the payment is actually done.
The credit score will be adversely affected initially. Only fiscally responsible actions after the settlement will redeem it.
Notwithstanding the above factors, if an individual hires a good settlement company, he can get out of the credit card debt trap in a considerably short time. All he needs to do is to ensure that he controls his spending. He should use his credit cards only in emergencies. In this manner, one could be on the way to a fiscally brighter future through credit card debt settlement.