Credit cards can be very helpful when making payments out of your budget. The use of credit cards is quite beneficial for the American population. However, one must be careful with the debts acquired.
Remember that credit cards work on an interest-based payment system, and the longer it takes for the user to pay, the more money they owe. Therefore, we leave you with this article on how to solve the problem of credit card debt.
Ways to relieve your credit card debt
Acquired debts will not go away just like that. However, there are several options for debt relief, such as payment methods, lenders, new cards, and even refinancing. The options are quite varied, and you can choose the one that best suits your financial situation.
Refinancing
Refinancing a credit card is based on transferring the debt balance from another credit card with either a lower interest rate or, in the best case, a 0% interest rate. In this way, the initial card debt will be paid off.
The new card will have the current debt. However, having a lower interest rate will save a considerable amount compared to the original card. Some cards have a 0% interest promotional period, meaning you would only have to pay off the debt.
The card will start charging interest if the promotional period has passed, which normally lasts between 12-18 months. Still, in the previous months, you will have already paid off a large part of the debt without paying interest because you will have saved a significant amount of money.
The objective of refinancing is to reduce the amount of money to be paid for interest, not to get rid of the debt in its entirety.
So you will have to progressively pay off the new card until you reach the initial balance and return to zero again. This is an adequate option to avoid affecting your credit score.
Debt Consolidation Loan
If you think that paying off the debt with another credit card with lower interest rates can become a vicious circle between the cards you have, you can apply for a loan to meet the existing debts. So you look for a lender to help you with the debt.
The lender may ask for your credit score to verify that you can repay the newly acquired debt, which is why it is so valuable to have a spotless credit history. There are different lenders with various terms and types of loans.
An application must be made to obtain the personal loan, and the lender will review the terms and conditions. Once accepted, the money will be delivered or transferred, depending on the agreement, to your account. That money can be used to pay off the credit debt in full.
This will pay off the credit card debt and begin a monthly relationship with the lender until the payment is paid in full.
Debt Management Plan
To make a debt management plan, you should contact a credit counselor, who will help you get settled and explain how credit card debt payments can be made as long as you need to establish yourself financially.
The credit counselor will ask you for a single monthly payment; they will cover the debts and distribute the necessary money to your creditors on your behalf. This payment plan is designed to pay your debts in full within 3 to 5 years.
With a debt management plan, credit counseling organizations stay in contact with creditors to reach an agreement. Therefore, they will not charge you late payment fees or get them to waive fees, or reduce the interest rate.
The management plan states to the creditor that you are committed to paying the debt in full over the established time frame. However, the creditor will block the card’s functionality that presents the debt until full payment has been made.
This means that the customer will not be able to use the credit card enrolled in the debt management plan, but neither will the account be removed. Once the debt is paid off, you can use your card normally again.
Declare Bankruptcy
If you don’t see any options that will help relieve you of your financial responsibilities, the U.S. government state can declare you bankrupt and thus forgive all of your financial duties.
Bankruptcy means you certainly cannot repay the debt(s) you owe. The case must be studied by a trustee who studies your assets and material possessions to reach this state.
Before reaching the state of bankruptcy, you must sell all the real estate properties that can help to alleviate the debt, and only when it is demonstrated that there is no other financial option will the state take charge of the debt. It will declare you in a state of bankruptcy.
A credit history must be created showing that the client is in bankruptcy status, which means that they will not be able to open accounts or apply for credit cards. In addition, it will significantly affect your credit score for the seven years that the history is open.
In force majeure cases
Suppose the reason for not being able to pay the debt is due to force majeure, i.e., natural disaster or declared emergency. In that case, you should speak directly with the credit card issuer, i.e., the creditors.
In order to do this, you should contact the customer service team of the credit card issuing bank, specifically the Consumer Financial Protection office, to state your case. They will ask you a series of questions to study your case, so we recommend knowing the following:
Why can you not make the minimum monthly payment on a credit card? If so, state how much money you have to pay and how much the minimum monthly payment you can make is, as well as when you can resume recurring monthly payments as requested by the bank.
The bank may make you a payment proposal; however, they may also ask you to generate the proposal yourself; therefore, it is also good to consider the new payment amount that would be convenient for you and the time needed for this new agreement.