By late 2018 credit card debt in America reached $420.22 billion. That’s a 5% increase from the previous year. The average U.S. household with credit card debt has an estimated $6,929 in revolving balances. And about 9% of Americans who have credit card debt feel they will never be completely free of it or feel credit relief.
How Credit Card Debt and Debt Relief Companies Work
Credit card debt, however, can be a little more complicated than the simple fact that you make a purchase and owe the money later. There are pros and cons to using a credit card.
How Credit Card Debt Relief Companies Work
The good news is that there are companies out there that offer help with credit card debt relief. These companies evaluate your debt then work with you to create a plan that helps you to succeed by lowering your balance and allowing you to pay of your balance off more quickly.
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.
Options for Credit Card Debt Relief
Let’s take a look at the different options you have to get help with credit card debt.
- Debt Negotiation or Debt Settlement: This option is where a debt relief company can negotiate with your creditors to bring down the principal balance that you owe. Because you owe less, debt settlement can be faster and less expensive, offering you more timely credit relief.
- Snowballing: Snowballing can offer credit relief by helping you organize and rank your debts. It involves listing your credit card debt in order from lowest balance to highest balance. Then, you focus your efforts on paying off the card with the lowest balance while continuing to make minimum payments on the other cards. Once the first card is paid off, you will then have more money to work on the card with the second lowest balance. Financial expert, Dave Ramsey, invented this method and called it such because like a snowball rolling down a hill, you pick up momentum with each credit debt you pay off. With this option, however, you are still required to pay back the full amount of credit debt.
- Debt Stacking: Another option in credit card debt relief is through debt stacking. This method is the opposite of snowballing as you order your credit card debt from the one with the highest interest rate to the one with the lowest interest rate. The theory is that this method will save your more money, however it requires a high amount of discipline to keep chipping away at the card with the highest interest rate. If the balance is high on the card with the highest interest rate, it can take a long time to pay off that balance.
Credit Card Debt Relief: The Pros and Cons
The Pros of Credit Card Debt Relief
Being deeply in debt is a very stressful situation and a heavy burden to bear. It can cause marriage problems, depression and other physical health effects. By working toward credit relief through a debt relief plan you can ease and eventually dissipate that stress.
It also means that you can have your life back as you are not constantly dealing with paying of credit debt. And best of all, less and less of your money will be going to paying off debt. This will leave you with more money in your pocket to spend or save the way you want.
The Cons of Credit Card Debt Relief
Not all programs have the same success rate and it is up to you to do some research. It is important that you understand some of the basics of each type of credit card debt relief so that you are able to choose the option that is best for you.
Also, you may not qualify for every credit relief solution. Debt settlement requires the ability to save money to pay off your settlements. If you have no income you can’t save money, making it impossible for you to qualify for this option.
Credit card debt relief can also be complicated. An option like bankruptcy may seem like an easy option as a portion of your debt is wiped out, however, it is important to know that filing for bankruptcy leaves a stain on your credit report for 10 years and can make it hard, or nearly impossible, to get new credit.
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.
There are some other credit relief options. However, some of these may not necessarily be your best option.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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!