Oh, the attempts you’ve made to eat into your credit card debt. And yet, it seems no matter what you do, you can’t seem to make headway. So now it’s time to face it: debt relief is your best option. But what is the best form of credit relief? Read on.
When Should You Seek Credit Relief?
Well, if you’ve bent over backward to slash spending, and you still have no hope of repaying your card issuers, bankruptcy, debt management, or debt settlement should be considered. You’re also a prime candidate for credit relief if your debt equals at least half of your gross income.
What To Do Before Signing An Agreement
Before signing onto any pact, be certain you understand requirements for qualification, fees, tax implications, and which creditors are being paid and what amount. If a collection agency has your debt, determine who owns the debt so payments are sent to the correct agency.
Credit Relief Options
To free yourself from your financial cauldron, consider the following options to find the best credit relief.
Bankruptcy
This is a last-ditch strategy, but if you don’t think you can hew to payment arrangements made through debt settlement or debt management, you may want to speak with a bankruptcy attorney to see if bankruptcy is the most realistic and practical route.
Chapter 7 liquidation is the most common form of bankruptcy and can satisfy most credit card and other unsecured debt in three to four months. Just know that the filing will severely damage your credit score and be on your credit report for a decade. And while rules vary by state, you might have to relinquish property such as a second vehicle, vacation home, or family heirlooms.
Chapter 13 bankruptcy entails a three- or five-year court-approved repayment plan that’s based on your debt and income. With this strategy, which stays on your credit report for seven years from the filing date, you do get to keep your property if you keep up with your payments.
Debt Management
Under this kind of plan, you pay your credit card debts in full, but usually at a lowered interest rate, or with fees forgiven. What happens is you make a monthly payment to a credit counseling agency, which then pays your creditors.
Note that you must close your credit card accounts and, in many cases, you can’t open any new accounts until the plan is completed. If you miss a payment, though, you will be kicked out of the plan.
Debt Settlement
This approach calls for you to cease paying your creditors and instead deposit money into an escrow-like account. Once you compile a big enough cache – usually in four to six months — the debt settlement company will contact your creditors with an offer to repay a percentage of your debt. Card issuers will often agree for fear of getting nothing from you, particularly if bankruptcy is also on the table.
Note that continued late payments will further hurt your already-damaged credit scores. Also, you will get collections calls and penalty fees, and you may even get sued – all while you’re still negotiating. Depending on your debt load, the entire settlement process could take years. However, the strategy is a proven one that can be beneficial in the right situations.
What is the best form of credit relief? Well, the real question here is what is the best form of credit relief for you? After all, it really depends upon your circumstances. The best news is you now have enough info to make an informed decision that will get you back on a better financial path.
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