Ideally, you should pay off your credit card balance in full every month. However, life happens, and things get in the way, making it hard to follow this advice. As a result, we rack up credit card debts which can leave us feeling overwhelmed.
Before attempting a settlement on credit card debt, explore other ways to remove your outstanding debt. Here are five ways to get out of credit card debt you should consider:
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Financial planners recommend using the debt snowball method to pay off credit card debts little by little. The process involves paying the smallest loan first while making minimum payments on all other cards.
Once you’ve fully paid the smallest loan, roll over the payment to the next smallest loan. As you start paying off your credit cards, the feeling of accomplishment will motivate you to continue.
In contrast to debt snowball, this method involves paying the loan with the highest interest first. While it can take some time to complete that payment, you’ll save more money in interest payments in the long run. Of course, during this time, you need to keep paying the minimum amount on the other cards.
If you have good credit standing, you can get another card that offers an introductory 0% debt transfer. Consolidate all your card debts into one card, so you only have one payment to make every month. Plus, the interest will also come out cheaper!
If you are lost in managing your debt, you can also seek credit counseling. The financial counselor will put you in a debt management program and help you afford monthly payments until you’re finally debt-free. Bear in mind that counselors will charge a professional fee for their services.
Debt settlement should be your final course of action, as it has significant negative repercussions on your credit score. However, if you are way behind your payments and you don’t see any means to get out of debt, offering a settlement on credit card loans may be the best way to get back on track.
Credit card settlement means you offer the credit card company to pay only a percentage of what you originally owe. Typical credit card settlement percentage ranges from 40% - 60%. Although, it can be as high as 80% if you’re dealing with the original creditor (in this case, the credit card company).
Take note that credit card debt settlement taxes are applied to any forgiven amount as they can be considered additional income.
Debt settlement involves negotiation skills and perseverance to keep asking for fair compensation. st cards have a relief program that will help you with your cause. You should ask your credit card company if they will consider a debt settlement program even if not all creditors will agree– it can’t hurt to try!
Write a settlement offer letter that stipulates the percentage of the loan you’re willing to pay. Ideally, offer something as low as 40% - 50%. Most lenders expect this much for the first round of negotiations. However, they will not likely give this amount. Offering a lower percentage provides enough room for further negotiations.
Be patient when writing your letters. You may have to write several letters and content with the back and forth communications in a negotiation. Present your case truthfully and accurately without being too dramatic. Maintain professionalism during the process and be ready to pay for what you offer.
Most creditors demand a lump sum payment, but some accept a monthly installment. When the settlement is finalized, endeavor all means to pay off the agreed amount. It’s helpful to have already cash saved before you make negotiations, so you’re ready to pay any agreed amount.
If you don’t want to make a full settlement, you can always check with your creditor if they allow a partial settlement of credit card debt.
Getting out of debt, while seemingly impossible, is easy. All it takes is financial discipline. Spend less than you make so you can allocate portions of your income to debt payments. Avoid accumulating more debt by not spending on things you don’t need or charging too many things to your credit card. Mostly, pay your bills on time to avoid late penalties.
For more articles on managing your credit card debt, check out Processing Card’s blog section.
Florence Carpenter is passionate about ensuring that the process of opening merchant accounts is as straightforward as possible. She graduated from the University of Michigan with a bachelor’s degree in Marketing.
