Need Credit Card Debt Relief?

Just Focus On These Two Things...

If you need credit card debt relief and are confused about what appears to be an endless amount of advice, options and "techniques", here is a tip. Eliminating credit card debt really only comes down to controlling two things, time and interest.

And once you understand how these two things relate to your ability to pay down your debt, you can then implement a plan, either on your own or with the help of a professional, to get you on the road to debt freedom.

Achieve Credit Card Debt Relief By Focusing On The "Interest" You're Paying First

When it's working for you, interest is a great thing. But when it is working for someone else, and you are the one paying it, it can be debilitating for you financially. Add to that the fact that as consumers the interest rates that you and I earn on our savings usually pales in comparison to the interest rates that we pay on our debts (especially our credit card debts), and the problem is compounded. Compounded in the form of compound interest that is.

Compound interest is one of the most powerful wealth building tools around. But when it's working against you (as it is on your credit card debt) with interest rates at 19% or higher, it is almost impossible to combat. (Not sure what what I'm talking about? Click here for a quick introduction to compound interest calculations.)

That's why in order to speed up your credit card debt relief plan, you need to first focus on getting the credit card interest rates you are paying as low as possible. Here are some ways to do that.

  1. Consider transferring your balances to a new zero percent interest credit card. Many credit card companies offer "teaser" interest rates on balance transfers when you sign up for their card. And sometimes the rate is even 0% for the first twelve months. By shifting your debt to a low or 0% interest rate credit card, more of every payment you make will go towards paying down the principal of that debt and less towards interest charges. A balance transfer can also be a good alternative to a credit card consolidation loan.
  2. Getting out of credit card debt may be a phone call away. This may seem obvious but you can always call the credit card companies directly and ask if you qualify for a lower interest rate on your card. (Obvious yes, but not many people try this simple strategy.) Keep in mind that even if you are turned down you should continue to pursue this strategy at least every month as your situation changes. It is also possible that the credit card company's interest rate guidelines can change over time. So keep checking back on a regular basis.
  3. Working with a credit counselor can be a positive step towards credit card debt relief. Not only can they help in getting your interest rates lowered, a credit counselor can also negotiate with your creditors to have late fees and over limit penalties removed from your account. And on top of all that, a reputable credit card counselor will conduct a thorough analysis of your financial situation and help you prepare a budget that gets your spending and income in line. In fact, some credit counseling agencies will provide a free online cost savings estimate which will show you "how, and how much" you can save with a debt management program.
  4. Consider a debt consolidation loan to help with credit card debt relief. A consolidation loan can benefit you in three ways. First, you can lower the interest rate you are paying on your debt significantly. Second, you can potentially lower your monthly debt obligations (although this could also drag out the length of time that you remain in debt). And finally, if you use a home equity loan, it is possible to make the interest that you are paying on your debt tax deductible. (Check with your accountant on this.)

Achieve Credit Card Debt Relief By Focusing On "Time"

When it comes to managing credit card debt, the Rolling Stones did not have it right. In other words...

Time is not on "our" side.

Next to interest rates, (or because of interest rates), time is the other enemy in your credit card debt relief battle. Now, when we discussed interest rates above, I touched on the phenomenon of 'compound' interest. When you are carrying credit card balances and paying interest at 18%, 19%, 20% or higher, the effects of compound interest can be almost impossible to overcome. And this is especially true if you are just paying the minimum balances on your cards each month.

Consider this sobering fact.

If you had a credit card balance of $15,000 at 19% interest, and only paid the minimum balance each month, it would take you 62 years and over $54,198 in interest charges (yes, you read those figures correct) before that debt was gone.

62 years! If you are old enough to have a credit card, you would probably be happy just to be alive in 62 years.

Now, it almost seems painfully obvious to say this but, the quickest path to credit card debt relief is to pay off your accounts as fast as you can. The longer you stay in debt the more devastating the effects of compound interest are. A good credit counselor can teach you more about this and also give you advice on money management and budgeting skills to make sure that you do in fact pay down your debts as fast as you can. And if they deem it helpful after thoroughly going over your finances, they may also recommend that you enter some type of debt elimination plan.

Reputable debt help companies will offer credit counseling for free. However, if you enter into a debt relief program, there will be fees attached, which vary from program to program and company to company. If you do decide to seek professional help, "shopping your business around" to several different companies is advisable.

The Two Most Common Credit Card Debt Relief Programs

The two most common types of credit card debt relief plans available to you are debt management plans (also called debt consolidation plans) and debt settlement plans (also called debt negotiation plans).

With a debt management plan, there is a small set up fee as well as a monthly fee to administer the plan until your debts are paid off. With a debt settlement plan, there is usually a fee charged that is equal to a percentage of the amount that your outstanding debts have been reduced.

Now, if you do decide to consider seeking some professional debt help, here is a look at the process that you might go through to arrive at an appropriate solution for your situation.

Common Steps To Realize Credit Card Debt Relief

Credit Card Debt Relief Option #1: A Credit Card Debt Management Plan

The main goal of a debt management plan is to have you out of debt in about 60 months.

Yes, 5 years. This is a process, it is not a magic bullet.

The first step in figuring out if this is the right option for you is to get in contact with a credit counseling agency, which you can easily do right online. You will provide them with some very basic information about yourself, including the amount of unsecured debt you have outstanding. This typically includes things like credit cards, department store cards, gas cards and medical bills, but excludes things like your mortgage, car loans and student loans. The credit counselor will help you sort out which of your debts apply. And don't worry, this process has no commitment tied to it and does not involve a credit check.

Following this initial credit card debt relief consultation, a reputable credit counselor will most often provide the following to you regardless of whether or not you qualify, or choose to enroll in any of their programs.

  • patient, personalized financial counseling and education
  • a thorough budget analysis
  • money/expense management tips
  • assessment of your individual situation, the purpose of which will be to identify and help implement the most appropriate credit card debt relief solution to suit your needs.
What Might The Credit Counselor Recommend To Help Me With Credit Card Debt Relief?

This is a good question. And keep in mind that your individual situation will be different than everyone else's. Similar maybe, but different. Let's look at a few scenarios.

If you have $2,000 in credit card debt and earn an income, but are just struggling to manage your finances, a little credit counseling may be all you need.

On the other hand, let's say you find yourself with $10,000 of unsecured credit debt, you still have an income, but you are struggling to make even the minimum payments on you debts each month. You may even have fallen behind on a few payments. If this describes your situation you may be a candidate for a debt management plan. Here's what will happen with such a plan and how it works to achieve credit card debt relief.

Typical Steps Of A Debt Management Plan

  1. You will provide copies of all of your pertinent financial documents to your debt counselor.
    • pay stubs
    • mortgage information
    • credit card statements
    • personal loans
    • student loans
    • car loans
    • etc.
  2. You counselor will then take this information, evaluate your living expenses and then construct a budget for you.
  3. There are certain monthly expenses that take priority like food, housing, child care and medical. In your budget these are identified as needing to be paid first.
  4. Next, your secured loan payments (things like car loans) are identified as the next priority on the list of things to be paid.
  5. The final priority is to eliminate credit card debt and other unsecured debts. To help with this goal, your credit counselor will contact all of creditors and attempt to negotiate lower interest rates along with the elimination of any late penalties and over-limit fees that you have been assessed.
  6. You must agree to close your credit card accounts.
  7. Based on your ability to pay, which is tied into your budget, a payment schedule is devised that will enable you to realize credit card debt relief in about 60 months.
  8. Each month you then send just one check to your credit counselor, who in turn pays your creditors on your behalf. Note: This is where the term debt consolidation comes from. All of your monthly unsecured debt payments are "consolidated" into one payment that is made to your credit counselor.

What Will You Have To Pay For This Service?

Credit card debt consolidation services are not free, but they are not expensive either. There will be a one time administration fee charged to you when you sign up, followed by a small monthly fee.

Credit Card Debt Relief Option #2: A Debt Settlement Plan

  1. If it is determined by your credit counselor that you would not make a good candidate for a debt consolidation program, then the next option is to consider a debt settlement plan. Whereas the focus of debt management plans are to reduce your interest payments and structure your debt payments so that you can get out of debt in 60 months, the focus of a debt settlement plan is to actually reduce the amount of your unsecured debts that you owe.
Sidebar: Before I explain how debt settlement plans work, I will say that this option is only appropriate for people who are facing financial hardship (due to things like divorce, loss of employment, an illness etc.), and are likely considering bankruptcy. So remember, if you qualify for a debt management program, that should be the preferred route you take when seeking credit card debt relief.

Having said that, debt settlement can be a great option for some people who are seeking credit card debt relief. Through the use of a debt settlement plan, you can expect to reduce your debts by as much as 50% - 70%. And yes, these are achievable figures. It would not be uncommon for a $10,000 credit card debt to be "settled" for somewhere between three to five thousand dollars.

Typical Steps Of A Credit Card Debt Settlement Plan

  1. Once you sign on with a debt settlement firm, the first thing you will do is stop paying all of your unsecured creditors (if you haven't already stopped paying them). You will however have to continue to make payments on your secured debts (things like car payments, mortgage payments etc). The money that you would have been using to make your unsecured debt payments each month will now be put into a new "debt settlement" bank account. The objective is to accumulate enough money over the next 12 to 36 months so that once a settlement amount is reached with your creditors, you have the money available to pay it.
  2. Once you stop paying your creditors, the debt negotiating begins. The credit card debt settlement company working on your behalf will contact your creditors to let them know that you wish to settle your debt with a one-time lump sum payment. Keep in mind that this "one-time" payment amount can be as little as 30% to 50% of the outstanding debt.
  3. Once a settlement is reached, you can use the funds from your "settlement bank account" or another source (personal loan, home equity loan) to pay the final amount that is due.

Now, I would be remiss if I didn't point out that the process is not quite as simple as I have made it out to be above. I should also point out that debt settlement, although an effective tool when seeking credit card debt relief, is not suitable for everyone.

The Important Thing To Remember About Credit Card Debt Relief

The most important thing to remember when facing a credit card debt relief problem is that you have several options. The key to ultimate debt elimination is to understand your options, choose the appropriate path, and then stick with it. The right plan, as well as persistence will see you through to debt freedom.


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