Credit Card Debt Negotiation: Which Method is Best for You?

in Money

When your balances and payments are more than your budget can bear, credit card debt negotiation is one way to lower those amounts and make your debt more manageable. Credit card companies are almost always willing to lower things like your interest rate and even your monthly payments to help you become current or just to give you a break for a limited period of time. The biggest problem many people face is that they’re ready to negotiate before they get into a financial bind. While this is smart financial planning, it typically doesn’t work. Negotiating usually isn’t an option for people who have been making their payments on time. And it’s not worth damaging your credit score to fall behind if you have any other options.

But for those who have already fallen behind, credit card debt reduction can save the day. There are a few ways to achieve this reduction:

  • Credit debt consolidation
  • Credit card debt settlement
  • Credit card debt reduction (lower interest rates and a freeze on late and over-the-limit fees)

Credit debt consolidation involves getting a consolidation loan that will pay off all your credit card debt. You make one loan payment monthly instead of all those card payments. This will often involve a loan based on the equity in your home, so defaulting on this type of loan could be devastating. Make sure you plan well and avoid incurring new credit card debt. This type of loan won’t hurt your credit the way other negotiations can. Do beware when you’re looking for a debt consolidation service because there are so many catches and scams out there. Look at your local bank and local lenders first, as they’ll often give you the better deal on such a loan.

Credit card debt reduction without getting a loan or having your balances slashed and your lines of credit closed is possible, but not easy. Typically this is when you have a hardship case and your credit card company agrees to lower your interest rate and/or monthly payment for a set period of time, usually 3 to 6 months. Late fees and over-the-limit fees are often waived during this period, provided you make the new, smaller payment on time each month. This is a good option to get caught up during a difficult time, and should not affect your credit. In fact, because you’ll be paying on time it’s a good choice if you’ve been having credit problems. Ask your credit card company to be sure that it won’t affect your credit score before you enter into this agreement.

Credit card debt settlement means that you or your chosen debt negotiation services will work with your creditors. A new level of debt is negotiated that’s much less than you currently owe. You pay that amount, usually in a lump sum, and your entire debt is forgiven. This method means that your credit cards are closed so you’ll lose your ability to buy on credit. It will also lower your credit rating and may make it impossible for you to get a loan for some time. This may be a good option if you can come up with the full amount they ask for at once. It’s sometimes the only option if you can’t find any other way out of your credit card debt and you have to get out from under the payments as soon as possible.

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