What is Credit Card Debt?

How Credit Card Debt Works

There are some times when borrowing money is not a bad thing. When you use a credit card and then subsequently and conscientiously pay off your credit debt, you build your credit score. Having a good credit score will allow you to get credit when you need it in the future. Also, carrying credit cards may be easier than carrying a lot of cash. They can also be helpful when purchasing a big-ticket item and are helpful when you have an emergency expense. Using credit cards can even be a helpful tool for budgeting as the receipts you get allow you to track your spending.

However, it can be easy to abuse credit cards. Many people use them without thinking about how they will manage or pay off their credit card debt. If you are unable to pay off your credit debt, not only do you owe money, but it can also negatively affect your credit score. Credit card companies are good at convincing cardholders to continue to spend despite their ability or inability to pay off their credit debt. They use tactics such as low-interest promotional periods that later increase to a high rate after that period is over. They encourage higher spending by offering cash-back points, airline miles and other goodies. These offers all sound tempting, but once you do the math, you realize a 2% cash-back rate pales in comparison to a 15% interest rate.

The Cons of Credit Card Debt Relief

Unfortunately, getting out of debt is not always that easy. While the upsides of credit relief are apparent, you need to be aware of the negative aspects of this solution:

• It is not free. The company takes a certain percentage of the debt you enrolled in. However, this is a necessary price for a well-executed service.
• There are short-term risks. The debt relief process may require you to stop making payments, which may result in late-payment fees and an interest-rate increase.
• It can be recorded on your credit history. After the settlement, future creditors may be apprehensive about your history stating “settled” instead of “paid in full.”
• You will need to pay taxes on the entire amount. Even if part of our debt is forgiven, it will still be reported to the IRS.

Your Trusted Source For Debt Relief

Not all debt relief companies are the same. It is important to choose the right company for you. Make sure to ask yourself two questions: first, what will it do for you and second, is it for real? Anything related to money attracts scammers and you should be weary of that. A quick way to spot a disreputable debt relief company is if it asks for any fees upfront, as the government has outlawed this. A company should only charge a fee after it has produced results, such as having settled some of your debts.

Possible Alternatives of Credit Card Debt Relief in 2020

There are some other credit relief options. However, some of these may not necessarily be your best option.

1. Make Minimum Monthly Payments: Continuing to make minimum monthly payments on your credit card debt is better than making no payment at all. But after doing the math, you may find that only paying the minimum amount due every month means you may never get completely out of debt.

2. Self-Payment Initiate: This option is where you map out your debts and a payment plan yourself, using options such as snowballing or debt stacking. It may also include calling creditors yourself to explain your situation and ask for concessions. In this case, you will need to have documents available to prove you are suffering financial hardship. However, success is not always a guarantee with this credit relief option.

3. Credit Counseling or Debt Management: This option is a more streamlined way to manage your credit debt. It allows you to make a single monthly payment to a credit counseling agency. They in turn distribute money to your creditors on your behalf, often at lower interest rates. This allows you to pay off your debt faster, however you still owe the full amount of your debts plus interest. These programs often are designed to take 3 to 5 years but also have very low completion rates.

4. Debt Consolidation: This credit relief option allows you to take out a larger, low-interest loan in which you use that money to pay off your higher-interest unsecured loans. In theory, this should give you one monthly payment that is lower than your multiple credit debt combined.

5. Bankruptcy: For those who cannot meet their debt obligations, bankruptcy may be inevitable. This involves a formal declaration of bankruptcy which stops the creditor collection process and the individual with credit debt no longer owes the entire amount of unsecured debt.

6. Debt Settlement: Debt settlement is one of the best options for people with large amounts of debt and offers some of the biggest potential to lower overall debt amounts. Debt settlement has been a huge asset to so many of our clients and can help you get out of debt fast!