Finding Credit Card Debt Relief
The current financial crisis has increased the risk of credit card debt problems for Americans. People facing job or income loss, as well as business closures, often must rely on credit cards to cover bills and necessary expenses. Even after a household’s income recovers, it can be difficult to pay down high-interest rate balances. However, finding the right debt relief solution can make it faster and easier to regain stability.
How Consolidated Credit Helps Americans Find Debt Relief
The pandemic and resulting financial crisis have led to increased credit card debt for millions of Americans. This video offers a snapshot of consumer debt in the U.S. and how Consolidated Credit has helped Americans find relief.
2020 took a toll on people’s finances
Americans owe over $900 billion in credit card debt
The average household has a total balance of $7,849
But Consolidated Credit is here to help people find relief
We provided free credit counseling to nearly 280,000 Americans in 2020
And we helped consolidate over $232 million during this crisis
Don’t let credit card debt hold you back from recovery!
Call 800-995-0737 for a free debt and budget evaluation
Coronavirus debt relief tips
The Coronavirus Aid, Relief, and Economic Security (CARES) Act does not provide specific protections or relief for Americans with credit card debt.
However, the Federal Deposit Insurance Corporation (FDIC) has urged financial institutions “to work with their customers experiencing the impact of COVID-19.” by, for example, allowing them to skip loan payments with no adverse consequences, extending loan terms, and restructuring loans.”
If you are having trouble keeping up with credit card payments due to income loss during this financial crisis:
- Contact your credit card companies immediately. Be proactive and do not wait until you begin missing payments. At the first sign of a potential payment issue, call their customer service line.
- Ask if the company is offering any deferment program. Deferment will temporarily stop your payments for a set period while you are experiencing hardship. Be aware that interest charges will continue to accrue on your balance.
- If deferment is not available, ask about interest rate and fee relief. Some companies may be willing to lower interest charges or stop penalties from accruing on your balance.
- Maintain contact. If your deferment period or interest-reduction period is ending and you are still experiencing hardship, call to ask for an extension.
- Once your income is restored, call for credit counseling. Follow the normal steps outlined on this page to develop the right strategy to pay off your balances.
- Make sure to monitor your credit report closely. The CARES Act prevents creditors that provide deferment to customers to adversely affect consumers’ credit. Missed payments should not be reported on credit reports. You can download free copies of your credit report every week through April 2021 through com.
How to find credit card debt relief in 3 easy steps
“Debt relief” refers to any solution that minimizes the burden of paying off credit card debt. The goal is to reduce or eliminate interest charges and fees so you can pay off the balances faster. In many cases, you can pay less each month and still get out of debt faster than you can with traditional payments. Essentially, you find a more efficient way to pay back what you owe that works for your finances.
But every financial situation is different, and there are multiple ways to get out of credit card debt:
- Do a credit card balance transfer so you can pay off the debt interest-free
- Consolidate the debt with a low-interest personal loan
- Enroll in a debt management program through a credit counseling agency
- Settle debt for less than you owe, but you’ll take a hit to your credit
- Declare bankruptcy so you can make a fresh start
So, how do you know which solution is right for you? The answer is through consumer credit counseling. And Consolidated Credit is here to help you zero in on the right solution for your unique financial situation using these three steps.
Step 1: Get Free Credit Counseling
Credit counseling is not a debt solution in and of itself. It’s an easy, free way to find the debt solution you need. A certified credit counselor evaluates your debts, credit and budget to see where you stand so they can help you find the right solution for your needs.
|Time||30 minutes – 1 hour|
|Credit score impact||None (credit check is a soft inquiry)|
|What you’ll gain||
Step 2: Weigh your options for debt relief
The credit counselor’s job is to provide all the information you need to make an informed decision to get out of debt. The counselor can help you understand how a debt management plan through a credit counseling agency will work. They will also explain how this solution differs from others, like debt consolidation, debt settlement, and bankruptcy.
Once they answer all your questions, you may decide to explore other options before you choose a solution. As you research other options, these free resources can help you zero in on the best solution for your needs.
Step 3: Enroll in a debt management program as soon as you’re ready
If you decide a debt management program is your best option, then you can enroll as soon as you’re ready. Then our team will go to work. We call each of your creditors to work out three key factors that will make it easier for you to get out of debt:
- That they agree to accept payments through a debt management program
- To reduce or eliminate interest charges applied to your credit
- That they will stop tacking on penalties and fees to your debt
Once all your creditors sign off, you start the program. You make one payment to us each month, then we distribute it to your creditors on your behalf. Here’s what you can expect from a debt management program:
|Payments||Total payments reduced by up to 30-50%|
|Interest charges||Reduced to 0-11%, on average|
|Fees||Fees are set based on the state where you reside and are included with your monthly payment; average fees are $40 and are capped at $79 nationwide|
|Time to payoff||36-60 payments|
|Credit impact||Positive or neutral|
Specialized help for military Service Members and Veterans
If you are currently serving or have served in the military, then you face a unique set of financial challenges. Consolidated Credit works closely with Southern Command, Army OneSource and the Department of Defense to help military Service Members and Veterans get the financial help they need. We also offer specialized debt help for military personnel.
Getting debt relief for other types of debt
Credit card debt is not the only type of debt that you can include in a debt management program. You can consolidate almost any type of unsecured debt, not including student loans. This includes debt consolidation loans, unpaid medical bills that have gone to collections, and even some payday loans. If you’re struggling with student loans, then you will need a specialized type of debt relief.
Using debt consolidation to get relief
Debt consolidation is often the preferred choice for debt relief because of the benefits it provides. With consolidation, you pay back everything you owe while minimizing interest charges. You can often enjoy lower monthly payments, even while you pay off your debt faster and save thousands. There’s also no credit report damage, which you see with other solutions like debt settlement and bankruptcy.
There are three basic ways to consolidate credit card debt:
Option 1: Do a credit card balance transfer so you can pay off the debt interest-free
Credit Limitation: This option only works if you have good credit; excellent credit is better. Balance transfer credit cards offer 0% APR on balance transfers when you open the account. An excellent credit score means you qualify for the longest 0% APR introductory period possible. Some cards have promotions that run up to 18 or 24 months. That gives you up to two years to pay off your debt interest-free.
Be Aware of Fees: Balance transfers always involve transfer fees, even when you have 0% APR. You pay a fee for every balance you transfer – anywhere from $3 to 3 percent.
How It Works:
- You open a balance transfer credit, qualifying for rates and terms based on your credit score
- Then you transfer the balances from your existing accounts to the new account with fees added.
- You have a set number of months to pay off your debt with no interest charges.
Make sure to calculate carefully to ensure you eliminate the balance before the clock runs out. If you can, this will give you the biggest cost savings, because there are no interest charges. Otherwise, the interest rate on your debt could be even higher than it was originally.
Option 2: Consolidate the debt with a low-interest personal loan
Credit limitation: Like a balance transfer, a personal debt consolidation loan is usually only a viable solution for consumers who have a good credit score. The higher you score, the lower the interest rate you can qualify for on the loan. APR of 5% is ideal, but anything below 10% may be enough to provide the relief you need. If you can’t qualify for a rate below 10%, look for other options.
How It Works:
- Check rates with your bank or credit union, as well as other financial institutions and online lenders. Your goal is to find the best rates and terms.
- Apply for the loan that fits your needs. The lender bases your approval on your creditworthiness.
- Once approved, you use the money you receive from the loan to pay off your debts; in some cases, the lender will send the money directly to your creditors.
Essentially, you use the money from the loan to pay off your credit card balances and other debts. You can pay off things like medical bills, too.
When using this option, you want a loan with a term of five years or less. Any more than that means your total repayment costs will be too high. Just keep in mind that a shorter term means higher monthly payments. Calculate carefully to make sure you can afford the payments.
Option 3: Enroll in a debt management program through a credit counseling agency
The benefit of professional help: A debt management program is the solution you use if you can’t make progress on your own. If you don’t have good credit or you’ve missed some payments, your creditors may be resistant to working with you. Having the help of a credit counseling agency means you get a team of negotiators on your side. That makes it easier to craft a repayment plan that your creditors will actually accept.
How It Works:
- First, you talk to a certified credit counselor to review all your options. The counselor makes sure a debt management program is the right solution; otherwise, they can direct you on where to go.
- If debt management is the right choice, they can help you enroll. Together, you find a monthly payment that works for your budget.
- Then the counselor calls each of your creditors to get them to sign off on the adjusted repayment schedule.
- They also negotiate to reduce or eliminate interest charges, as well as to stop future penalties.
A few debt relief options you want to avoid
The three options outlined above are not the only options that consumers can use. There are other ways to find debt relief – we just don’t recommend them. At Consolidated Credit, we promote a “do no harm” strategy when it comes to debt relief. In other words, your debt solution should not put you in a worse position than when you started.
Each of the solutions above – when used correctly – can eliminate your debt without causing credit damage or making your financial situation worse. Other solutions can decrease your credit score or negatively impact your long-term financial plan.
For instance, you can:
- Use a home equity loan to pay off debt. However, this puts you at an increased risk of going into foreclosure. If you miss payments, you could lose your home.
- Tap into your 401(k) or IRA, but you may face early withdrawal penalties. It also drains funds in savings that you need later in life to retire on time.
- Settle the debt for less than you owe, but this will damage your credit score. You may also be required to pay income taxes on your next tax filing for the amount you settled.
- File bankruptcy, which can allow you to get out of debt in as few as 90-120 days. However, you can damage your credit for up to ten years.
Good ways to find relief versus bad ways
The right debt relief solution will help you reach zero without creating new financial risks or damaging your credit. When it comes to bad ways to seek debt relief, there may be some circumstances where using one of these solutions would be the best option. However, you should exhaust every other option first before you consider these last resorts.
|Good Ways to Find Debt Relief||Bad Ways to Find Debt Relief|
|Credit card balance transfer||Home equity loan / Home Equity Line of Credit (HELOC)|
|Personal unsecured debt consolidation loan||Cash-out refinance|
|Debt management program||Use retirement income (401k or IRA)|
|Debt reduction plan||Debt settlement program|
|Interest rate negotiation||Payday loans / cash advance loans|
|Workout arrangements with a creditor||Bankruptcy|
Deciding it’s time to get professional help
Sometimes, we get resigned to trudging forward, even if we’re not really getting anywhere.
Here’s a simple truth: Minimum payment schedules were never designed to help you get out of debt. Interest charges are revenue and profits for credit card companies, which means they’re quite happy if you stay in debt forever.
Thus, minimum payments only pay back a small percentage of what you owe – usually around 2%. It’s more affordable month to month, but the trade-off is that you stay in debt for a long time. Many times, if you only make minimum payments you could be paying those purchases off for decades.
And that’s only half the problem. If you run up high balances then even larger payments may not make a dent quickly at such high rates. Depending on your available cash flow and interest rates, it may be impossible to pay off your credit cards efficiently.
Try a simple test:
- Use the debt calculator below to see how long it would take to pay off just one of your big balances. You may want to review your budget to see if there are any expenses you can cut to free up more money for debt elimination
- Enter the balance and your current interest rate; if you don’t know your payment schedule, check your statement or choose 2%.
- Now weigh two other options: Pay the minimum plus a little extra or make a larger fixed payment.
That’s just one debt. Now think, how long will it take to pay all your debts off? If you don’t like the answer, it’s time to find debt relief.
On the other hand, if you still want to try paying off the debt with regular payments, follow the steps below. They will increase your chances for success.
Step 1: Negotiate lower rates with your creditors
A lower rate means more of each payment you make can go towards the debt instead of accrued interest. This does accelerate repayment, especially if you make larger payments.
Your chances of a successful negotiation increase if:
- You’re not behind on your payments
- Your credit score increased since you opened the account
- You’ve been a loyal customer for a number of years
If you are not successful negotiating on your own, then that may be a sign you need the help of professional credit counseling services. Having a team of experienced negotiators on your side with established relationships with creditors can go a long way in making sure you get the results you want.
Step 2: Implement a debt reduction plan
You basically strategically arrange your bills and make the largest payments possible on one debt at a time. You find as much cash flow as possible in your budget by eliminating expenses, then target each debt successively.
We offer resources that describe how to implement an effective debt reduction plan.
Are there government credit card debt relief programs?
Currently, there are no government-sponsored or government-backed programs that provide credit card debt relief to consumers. For example, unlike what you see with federal student loans, you cannot apply to have credit card debt forgiven without penalties. No program allows you to refinance or modify the terms of your credit card agreement like there were with mortgages during the Great Recession.
What the government does provide is oversight and regulation of debt relief services:
- The Credit Card Debt Relief Act of 2010 passed during President Obama’s administration prevents debt settlement companies from charging upfront fees. These companies may not charge fees until a debt is successfully settled on the consumer’s behalf.
- The Uniform Debt Management Services Act offers guidance to state governments on how to regulate credit counseling and debt settlement services. Under this agreement, many states:
- Only allow registered nonprofit credit counseling organizations to provide debt management services
- Cap fees for debt management services (fees are also capped nationwide at $79)
- Require both credit counseling and debt settlement companies to be accredited by a nationally-recognized association, which maintains strict ethical standards.
- Require credit counseling agencies and debt settlement companies to provide financial education as well as debt relief services.
- The Department of Justice also authorizes certain nonprofit credit counseling organizations to provide pre-bankruptcy counseling and debtor education.
Does Consolidated Credit adhere to these guidelines?
Yes. Consolidated Credit is a registered 501(c)3 nonprofit organization. We are nationally accredited through the Financial Counseling Association of America (FCAA). We are also approved by the Department of Justice to provide pre-bankruptcy counseling in our home state of Florida.