If you’re struggling to keep up with credit card bills, you’re not alone. According to a 2017 Bureau report, from 2015 to 2017 overall credit card debt increased by 13 percent, while people with very low credit scores saw their debt rise by 22 percent.
Even if you’ve hit a rough spot, lost your job, are dealing with family illness, or facing emergencies, you still have options. The earlier you act on those options, the better your chances are for avoiding a debt in collections, damage to your credit report, a potential lawsuit or bankruptcy.
Address your credit card debt with your credit card company
Contact your credit card company. When you think you might miss a credit card payment, or you already have, contact your credit card company as soon as possible. Many will work with you to find a repayment plan that suits your current situation. Once you’re late or miss a payment, you’re considered delinquent. If you don’t pay, the credit card company may block your ability to use your credit card and report the delinquency to the credit reporting companies. Generally, that delinquency can stay on your credit report for up to seven years. You could also face debt collection and be sued.
Find out what repayment options your credit card company offers. Credit card companies can, and often do, provide alternative repayment options. They depend on, among other factors, your income, how much you can afford to pay, and the amount you owe. They offer loss mitigation programs, sometimes called forbearance or hardship programs. Often these programs let you postpone a set number of monthly payments or pay a lower monthly payment at a reduced interest rate, until you repay the balance in full. If the credit card company determines that you cannot afford a full repayment plan within a certain timeframe, you might be able to negotiate to settle the debt for an amount lower than what you owe. This would depend upon the company’s policies and your account-specific circumstances. Remember to get written confirmation of any alternative repayment option to which you agree.
Debt settlement companies are typically for-profit companies that often state that they can negotiate with your credit card company to reduce the amount you owe. Credit card companies generally do not have special offers available to only debt settlement firms, so you are paying the debt settlement company for work that you can do yourself. Typically, the debt settlement company will ask you to stop any payment and will ask you to stop communicating directly with your credit card company. Stopping payments might have a negative impact on your creditworthiness that you could avoid by working directly with the credit card company. Stopping payments could also result in a lawsuit being filed against you by the credit card company or a debt collector.
Debt settlement companies charge fees–often 20 to 25 percent (or more) of the settled debt. You may face additional fees as well. You should carefully review all the terms and conditions of the debt settlement company’s fees and For example, it’s illegal for companies that sell debt settlement and other debt relief services on the phone to charge a fee before settling your debt.
Also, while credit card companies’ own loss mitigation policies are available to all eligible consumers, according to the 2017 Bureau report, often credit card companies will not work with debt settlement companies.
Comparing Costs: Debt settlement company vs. Credit card company
To better understand the difference between working directly with your credit card company and working with a debt settlement company, let’s take an example of a $10,000 credit card balance that is more than 120 days past due. This example assumes the credit card company would agree to a 60 percent settlement on a $10,000 debt, meaning you pay $6,000 plus any fees if you work with a debt settlement company.
This article was distributed by the Personal Finance Syndication Network.
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