Access to credit cards can mean the difference between life and death in an emergency. But even in less drastic scenarios, having a credit line can be what you need to get out of a pinch. On the other hand, when used unwisely, credit card debt could be an expensive way to borrow money.
If you are feeling overwhelmed by a growing list of creditors, remember that credit card debt is covered by the Consumer Credit Act (CCA). This law protects you and enforces strict rules on creditors if you are struggling to pay off your credit card debt.
Before your situation gets any worse, it would be in your best interest to get some credit card help.
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Can You Get Credit Card Debt Forgiven?
Debt forgiveness does not magically erase your debt. However, it would be possible to pay less than what you actually owe. For example, you have $10,000 in credit card balances and are six months behind on payments.
At this point, the credit card company has likely written off your debt and sold it to a debt collection agency.
Believe it or not, you can propose a settlement with this third party. Let us say you negotiate with them and agree to pay $8,000 in a lump sum. The $2,000 balance is then considered forgiven. Though it might seem favorable, this does not make that forgiven amount disappear as it will likely be considered taxable income.
How Can I Get Rid of Credit Card Debt Without Paying?
Situations that effectively erase your debt are rare and almost always include an extreme measure like bankruptcy. It may seem like a fresh start, but filing for bankruptcy has serious drawbacks.
Bankruptcy tanks your credit score and remains on your credit report for up to ten years. You may also lose property and assets in the process.
Otherwise, simply skipping your monthly payments also puts you in a dangerous position. Avoiding payments means your creditors can now sue you for the bills you owe them.
Depending on your state, you may also get your income garnished and have your assets seized. Although intimidating, it is always better to get credit card help before your creditors decide to take legal action against you.
How Often do Credit Card Companies Sue for Non Payment?
Credit card companies only sue you when your account becomes delinquent for 180 days. At this point, your debt is written off but the option to sue you remains. However, most creditors will not sue if the amount owed is below $1,000.
Nevertheless, even when your balance is substantial, lawsuits are usually the last option for credit card companies. The time and money needed for litigation is an added burden that your creditors would like to avoid as much as possible.
If there is a way for them to collect via less troublesome means, they will choose that option first. For instance, credit card companies would rather lower your minimum payment than go to court.
How to Get Credit Card Help
A credit counseling agency is a financial institution whose mission is to get you out of debt faster. They review your financial situations and offer a type of credit card help known as a debt management plan.
A credit counselor may also suggest you take out a debt consolidation loan. Non-profit credit counseling agencies offer a one-time evaluation free of charge, presenting less out of pocket costs for you.
Once enrolled in a debt management program, the counselor will act as the go-between for you and your creditors, set up a repayment plan, and negotiate to reduce or eliminate interest rates.
Is it OK to Settle with a Credit Card Company?
Debt settlement begins with you stopping monthly payments to your credit card. Instead, you save money towards a savings account usually managed by a debt settlement agency.
Once your credit card is significantly overdue, then the settlement agency contacts your creditor and makes a lump sum settlement offer using the money you saved. If they accept, then your debt is considered satisfied.
Debt settlement is risky since your credit score drops when you stop making your monthly payments. Credit card companies are also under no obligation to accept your terms. They may, in fact, choose to sue you instead.
However, credit card help through debt settlement might let you get away with paying anywhere between 25% and 80% of your original debt amount.
How do You Qualify for a Credit Card Hardship Program?
Financial difficulties due to job loss or a serious illness like COVID-19 may be acceptable reasons to put you on a hardship plan. This credit card help arrangement may delay or lower your minimum payments, interest rates, and fees.
The key is to be proactive in reaching out to your creditors.
To qualify for a hardship plan, also known as “accommodations,” you must contact your creditors ahead of time before becoming late with your payments. It is possible to avoid a negative mark in your credit report this way.
Your lenders may also offer longer-term solutions like work-out plans to help you pay off your debts.
How Does a Debt Relief Program Affect Your Credit?
Credit card help through debt relief programs negatively affects your credit score. Generally, debt settlement causes your credit score to drop by half as many points as bankruptcy.
As such, it would be easier to rebuild your credit score after settlement compared to bankruptcy.
Debt settlement and bankruptcy both affect your capacity to secure loans with favorable interest rates. But as much as it causes anxiety and stress, this temporary hit is necessary as you rebuild your credit score.
One way to start rebuilding is to take out a line of credit at a bank or credit union that you secure with your savings account.
Unsecured debt and personal loans through credit cards can become unmanageable in times of financial uncertainty. Before it gets any worse, it would be wise to get credit card help that will not involve drastic measures like filing for bankruptcy.
It is not advisable to stop your monthly payments as this already negatively affects your credit score. By reaching out to your creditors and even enlisting the help of credit counselors, you may be able to set-up a reasonable payment plan, avoid debt collectors, and even rebuild your credit score before your credit rating drops any further.