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How to Get Help with Credit Card Debt
If you are looking for credit card debt reduction services,
you will primarily find one of three options: debt settlement,
credit counseling (or debt management plans), or other forms of
debt consolidation. There are several options for consolidation,
and you can read more about those here. When choosing between
debt settlement and credit counseling, it is important that the
consumer pay close attention. These are two very different
options, yet they are often advertised and marketed as very
similar credit card debt reduction services.
Debt Settlement
A debt settlement, in its simplest form, is when a creditor
agrees to allow a consumer to pay only a portion of what is owed
(perhaps as low as 50 or 60 percent) to settle a debt. On the
surface, this can seem like a very attractive debt reduction
option. However, let’s take a closer look at what debt
settlement involves.To settle a debt, a consumer must typically already be several
months behind on payments. If you are not already several months
behind and you use the services of a debt settlement firm, they
will hold your payments until you do fall behind, which can have
a negative impact on your credit. You must also usually pay the
debt in one lump sum, rather then in monthly payments. This can
be difficult to do for many people.
If you are working with a
settlement company, they will likely take monthly payments.
However, the settlement company will simply hold the funds until
you have enough to make a settlement payment. In the meantime,
you will fall farther behind on your debt and rack up interest
and fees. You will also have to pay the settlement company a
(generally large) fee for their services.
While debt settlement is often advertised as an attractive debt
reduction service, it is generally a good option only for those
who are already several months behind on their credit card
payments, and whose accounts have already all been charged off
to collections. Even then, it is important to evaluate options
carefully and choose a settlement company wisely. Also, consult
with your tax advisor to find out how you could owe additional
income tax on "forgiven debt."
Credit Counseling
Another option for relief from credit card debt is credit
counseling, where you may qualify for a
debt management plan. With a debt management
plan, a credit counselor will negotiate with your creditors on
your behalf to help you receive certain benefits. These benefits
can include lower interest rates, waived fees, and sometimes a
lower monthly payment.Credit counseling is also not for everyone. If you have plenty
of money to pay your bills, you have never been late, and you
have low interest rates and a relatively small amount of debt,
then credit counseling may not be your best option. However, if
you are or have been behind on your credit cards, have high
interest rates, have a large amount of debt, or have a tight
budget from month to month, you should speak to a credit
counselor to see if you could benefit from a debt management
plan. A credit counselor can also help you decide what, if any,
credit card debt reduction services are right for you.
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