Credit card debt settlement is an effective bankruptcy alternative and getting out from under your unsecured debt load in a relatively short time – just 24 to 48 months depending on your particular situation. While it is not the perfect debt relief solution for everyone, it may be right for you if paying off your debt while looking for a bankruptcy alternative.
If you have never heard of credit card debt settlement before, it is important that you understand all the facts so that you can choose the debt relief strategy that is most appropriate for you.
Understanding Debt Settlement: Pros and Cons
What is credit card debt settlement? This form of debt relief is one option to bankruptcy or falling deeper and deeper into debt from all the late fees. It involves using an experienced professional to negotiate directly with your creditors in an effort to help you get credit card debt-free from credit card debt as quickly as possible. Using a knowledgeable debt settlement specialist can give you the following advantages:
- For those who complete the program, they settle their credit card debt amount by 40%-60%, allowing you to get out of credit card debt more quickly
- Inform and educate you about the Fair Debt Collection Practices Act
- Educate you on Credit Card Debt and how long it takes to pay off using the minimum payment feature
While credit card debt settlement is attractive to those looking for an alternative to bankruptcy, it is not without its downsides.
How Debt Settlement Works
This debt relief strategy is for individuals who can not afford their minimum monthly credit card payments. Instead, you save your “payments“ in a special account. When that amount approaches 20% of one of your account balances, your debt settlement negotiator contacts your creditor and offers to settle for that lump sum on the spot.
While this debt relief option is effective, there are challenges you have to face when using this bankruptcy alternative strategy:
- Credit card debt settlement involves savings money because the minimum payments have put you into a financial hardship. This results in late and delinquent payments on your credit report.
- There is a potential that you will be sued during the nonpayment period. However, many people who choose credit card debt settlement as one option to bankruptcy3 are already missing payments and risk this anyway.
- If the portion of your balance your creditor writes off as unpaid is greater than a certain amount, the IRS may treat that “savings“ as income and require you to pay taxes – but only if you are financially solvent at the time of the settlement (which many people are not when they get to the point that credit card debt settlement is a necessity).
While it has short-term negative effects, credit card debt settlement is an acceptable option for those set on an alternative to bankruptcy as a means to reduce their debt burden. It can also be ideal for those who cannot afford monthly payments or being burdened by high interest rates and late fees.
Credit Card Debt Relief Through Settlement – What Qualifies?
The following types of debts can be resolved using a debt settlement negotiator:
- Credit Cards
- Unsecured Loans
- Unsecured Personal Loans
- Unsecured Personal Lines of Credit
- Collections and Autos in Repossession
- Medical Bills
However, not every type of debt is eligible for debt relief. These types of debts must be resolved in a different way:
- Lawsuits, IRS Debt and Unpaid Taxes
- Utility Bills and Auto Loans
- Government Loans
- Student Loans
- Secured Debts
- Home Loans / Mortgages
Evaluate All Debt Relief Options Before Choosing Debt Settlement
Credit card debt settlement is not for everyone. It is typically for those who cannot continue to pay on their obligations but want another option to bankruptcy in order to protect their assets.
There is no easy way out, but there are different ways than bankruptcy or even ignoring the situation. Credit card debt settlement may be the option that best meets your particular long-term needs. Contact one of our debt settlement consultants and discover if this form of debt relief is the right choice for you.