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Credit Cards

How to get credit card debt relief

Date:
October 19, 2021

It’s easy to get overwhelmed when your credit cards get maxed -- and the pressure only escalates when you don’t have funds to pay them down. Relief programs are everywhere. But are they too good to be true? Do they work for everyone?

Let’s start with a warning: unreliable or disreputable debt relief programs abound. Some don’t function as they promise, and some can even leave you with more debt than when you started. Programs are easy to find, because they're good at self-promotion, but research, double-check and look for government validation or approval. Choose a program recommended by your state’s attorney general or consumer protection agency.

How credit card debt relief programs work

Debt relief programs negotiate with your creditors on your behalf, with the aim of getting them to accept less than the full amount you owe. That’s why they’re also referred to as “debt settlement” programs. 

Typically, they’re for-profit businesses that charge you for negotiating, and their fees are often high. 

The settlements negotiated by these programs usually result in a special savings account -- where you’ll deposit an agreed-to amount every month, to be used to pay off your credit card debts. You will probably be charged a fee to maintain the account, but you’re entitled to any interest earned in the funds you deposit there. 

Here’s where things can get tricky. 

Beware of the pitfalls of debt relief programs

Consider these common risks:

1. Credit card debt relief programs often require a 3-year commitment, with payments due every month over that period. But many applicants to these programs can’t afford those payments. If you’re already short on cash, make sure you can budget for them. Review the payments required of a program before you sign up. 

2. A debt settlement program may not be successful in negotiating on your behalf. Your creditors are under no obligation to negotiate with or accept the terms offered by your chosen program. 

3. Some debt settlement programs may request -- or even pressure -- you to stop making payments on your cards, as part of their negotiation process. This can result in late fees, add to your debt and damage your credit. Your creditors, or their debt collectors, may start calling your home, requesting repayment, and they could even sue you for repayment, winning the right to garnish your wages or put a lien on your home.

4. A debt settlement program can pick and choose which debt they want to negotiate first. They might target a card with a lower balance to negotiate first, leaving you paying higher interest charges on other cards. 

What to avoid with debt relief programs

Avoid doing business with any company that charges any fees before it settles your debts. Even the offer of a “guarantee” to settle your debt should be avoided, including the ability to stop calls from debt collectors or their lawsuits. If a program advises you to stop communicating with your creditors or promises to settle your debts for pennies on the dollar, avoid them as well.

What to try before a credit card relief program

When your debt becomes unmanageable, the first step should be to call your credit card issuers. Even if you’ve tried before, it’s worth another shot. You can do it for free, instead of paying a program to negotiate on your behalf. Look for the telephone number on your issuer’s site or on your card statements.

Be patient. Explain your situation. Ask for modified payments, at a level you can afford. 

You can also work with a non-profit credit counselor, who can help with a budget and offer well-informed insight into how to manage your debt and your household costs. They’ll look at the big picture and help find more affordable solutions. Workshops and seminars are often offered, along with one-on-one counseling sessions. Many large organizations provide access to credit counseling, from universities to labor unions, and although most reputable credit counselors are non-profit, many still charge small fees. 

One more alternative: declaring bankruptcy. It’s an option a credit counselor might recommend, with an explanation of the impact on your credit score and other consequences. Look closely at the terms attached to Chapter 7 and Chapter 13 before choosing one. But before you get approved, you’ll have to get counseling from a government-approved organization first, within six months of applying. Filing fees required for a bankruptcy filing are often high, and an attorney sometimes needs to be retained and paid. 

Use Bright to manage your card debts

Your Bright Plan can manage your card payments for you. Bright will analyze your finances and manage your card payments for you, always on time and optimized for lower interest payments. 

If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your checking account and your cards, set a monthly goal and let Bright get to work.

MoneyScience™ Team
Bright Money

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