If you need to know how to get out of credit card debt when you can’t make the minimum payments on your Visa or MasterCard, don’t panic! These credit card debt tips are from the CEO of Bills.com; they’ll help you manage your debt.
“On your credit card, you want to charge only what you can pay off in full every month and live debt-free,” says Ethan Ewing. “In the meantime, if you can’t make minimum payments, you can still make progress by paying as much as you can on the debt that has the highest interest rate. Stay current with other debts by making minimum payments. When the first debt is repaid, use the same strategy on the next-highest-rate debt.”
For more detailed info on coping with credit card debt and making minimum payments (or not), read Deal with Your Debt: The Right Way to Manage Your Bills and Pay Off What You Owe.
And, here are Ewing’s tips for paying off your credit card debt…
How to Get Out of Credit Card Debt When You Can’t Make Minimum Payments
“It’s best to handle debt yourself to protect your credit score,” says Ewing. “If that’s not possible, other legitimate options for help do exist. If you can’t make even minimum payments on bills, call creditors and ask for temporary hardship status.” Some credit card companies will agree to payment plans.
1. Debt settlement for credit card debts. A debt settlement firm works on consumers’ behalf to lower principal balances due, often obtaining savings of 50 percent of the total debt. The firm does not make monthly payments to creditors, but rather negotiates with the consumer’s creditors while the consumer accumulates funds for the settlement. Debt settlement firms charge consumers a fee for their services, typically a percentage of the debt enrolled or a percentage of the debt reduced.
Consumers who persist with a debt settlement plan can resolve their debts in two to three years at significantly lower cost than that of a debt management plan. Debt settlement typically provides better repayment terms than a Chapter 13 bankruptcy filing and does not leave a permanent bankruptcy judgment on your record.
Debt settlement may have a negative impact on credit card ratings, and is best suited for consumers in serious financial hardship. Debt settlement is good for those who can’t afford to make minimum payments on their Visa or MasterCard bills and who can’t afford the higher monthly obligation-typical debt management programs require.
2. Debt management for credit card debts. Debt management companies, also known as credit counseling agencies, maintain pre-arranged agreements with credit card companies to lower interest rates on a consumer’s existing debt to a creditor-issued “concession rate.” Debt management companies collect a monthly fee from consumers, as well as revenue from the credit card companies (“Fair Share” payments).
In debt management plans, monthly payments decrease but principal amounts owed do not. Consumers who are able to stick with the payment plans typically can pay off debt in approximately five years. Debt management plans also require higher monthly payments than debt settlement programs, and are best suited for individuals who are facing a less-severe financial hardship than a typical debt settlement customer.
3. Financial bankruptcy because of credit card debt. Bankruptcy can leave a severe negative impact on a filer’s credit rating for many years. Under bankruptcy reform enacted in 2005, it is harder and more expensive to obtain than it used to be. Under the new law, fewer people can eliminate most consumer debt by filing Chapter 7 bankruptcy, taking more people to Chapter 13 filings. Chapter 13 requires consumers to pay back debt on a repayment plan (which can take up to five years), while still suffering the negative repercussions of a bankruptcy on their credit reports and public records. Generally considered a last resort, consumers considering a bankruptcy filing should speak to a bankruptcy attorney licensed in their state.
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“In checking into these options, beware of any company that claims its solution is right for you without undergoing a thorough analysis and screening process,” Ewing said. “Know that facing up to unhealthy debt actually provides great freedom. Act now to build a healthy financial future. With hard work, and possibly some help, you will be able to recover as the economy does.”