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Credit Card Relief: Two Methods of Achieving Debt Freedom
How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy Confused by all the conflicting deft relief information on the Internet? ZipDebt's 32-page consumer debt guide
has helped *tens of thousands* of people understand their options and avoid getting ripped off by shady debt companies. If you're in deep, this is the information you're looking for. Learn why individuals and small business owners seeking to reduce very high levels of unsecured debt MUST USE DIFFERENT TACTICS than the average consumer with $10,000 to $30,000 of debt. |
There are two basic approaches you can take to getting credit card debt under control – reduce the interest rates so you can retire the debt faster, or settle for less than the full balance. With either approach, consumers can tackle the job themselves with the right guidance. To obtain credit card relief, it’s simply not necessary to hire a debt company to handle it for you.
FIRST METHOD: REDUCING THE INTEREST RATES ON YOUR CREDIT CARDS
You’ve probably heard of Consumer Credit Counseling through non-profit agencies. These programs are also called “debt management plans” (DMPs). With this approach, you hire an agency who has pre-negotiated interest rate reductions with the major creditors.
Let’s say you are starting out with a sky-high rate of 29%. Enrollment into a qualified DMP might yield a revised interest rate of, say, 9% instead. This can make a huge difference!
Ignoring the agency’s fees for the moment, let’s take a look at a $10,000 credit card account currently being billed at 29% APR. With a monthly payment of $250, it will take 141 months to pay off the balance in full, nearly 12 years.
Yet at 9%, it will take only 48 months to retire the debt at a pace of $250 per month, almost EIGHT YEARS sooner. This translates to a long-term savings of more than $23,000 at the reduced rate.
Here’s a well-kept secret though: You can accomplish exactly the same credit card relief on your own without having to hire an agency and pay fees. In fact, you can often get BETTER terms negotiating on your own with the bank vs. working through a non-profit agency.
Case in point: One major bank creditor (who is on nearly every consumer’s list of creditors) will only reduce the interest rate through formal proposals submitted by credit counseling agencies to a low of 5% or 6%. This is a lot better than 29%, obviously, but many consumers are granted a program directly at ZERO percent, where the debt is repaid over 5 years at no interest.
How’s that for a better way to pay off a balance? Every dime you pay reduces the debt load. And yet this option is NOT available through enrollment in a formal DMP. It’s no wonder that this creditor signs up twice as many of their customers directly for this type of hardship plan, vs. the number of clients they service via third-party agencies. Why pay fees when you can get better results on your own?
Here’s the trick to it: You won’t get these results when you are current on your accounts. The banks won’t give you the time of day when you are on-time in their system. Credit card relief is only provided to people who are behind. I know it sounds strange, but it’s how the banks work, and when you get an honest rep on the line, they will tell you this candidly.
How far behind do you need to go? At least 2-3 months, so expect negatives to appear on your credit report and for your overall score to drop significantly. This is the “price” you have to pay in order to get out of debt faster.
SECOND METHOD: CREDIT CARD RELIEF THROUGH DEBT SETTLEMENT
The second approach to debt freedom is a more drastic solution than the first method. Here, your goal is not to enter a bank’s internal hardship plan at a reduced APR, but rather to SETTLE the account for a figure much less than the BALANCE owed.
For example, let’s say we’re talking about that say $10,000 credit card we used in the above example. Depending on the creditor, it is often possible to settle for as little as 20%, with 30-35% settlements being very normal and routine, and 50% generally being a worst-case result unless things drag on too long and the creditor decides to pursue legal action. (This can usually be avoided if you work the program correctly.)
So instead of paying $12,000 over 48 months as in the above illustration, you can negotiate a settlement instead. Let’s say your $10,000 balance grows to $11,000 before you settle it, and you get the creditor to accept 40 cents on the dollar. Your total payout is $4,400, normally paid in a lump-sum or 2-3 installments. That’s it. Voila! You are done with that debt forever. Forget paying $12,000, forget paying $35,000 over 141 months. Just pay the $4,400, and you are done!
Be aware that debt settlement is much more damaging to your credit than the do-it-yourself approach to interest rate reductions, mainly because it’s usually necessary to go a lot farther behind in order to position for settlements.
Also, be advised that settlement of a debt will result in a 1099-C being issued by the creditor for the forgiven balance. This must be treated as taxable income unless you are insolvent (i.e., have a negative net worth) at time of settlement. The reality is that most clients who are a good fit for settlement are insolvent anyway, and therefore the tax issue is not relevant to their situation.
To learn more about this method of credit card relief, please read our free 32-page report, “How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy.”
 Charles J. Phelan has been helping people become debt-free without bankruptcy since 1997. A former executive in the debt settlement industry, he teaches the do-it-yourself method of debt negotiation. Audio-CD material plus expert personal coaching helps consumers achieve professional results at a fraction of the cost. More information ...
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