Helpful Credit Card Debt Reduction Solutions
Debt Consolidation Loans, Debt Settlement, Debt Management Plans
Jul 2, 2009
Credit card debt reduction is fundamental to alleviating financial difficulties for the average U.S. family. Personal debt can be reduced naturally with a debt consolidation loan or a balance transfer. Others may prefer to pursue a debt solution, such as filing for bankruptcy under chapter 7 or chapter 13, debt settlement or a Debt Management Plan (DMP).
The Credit Card Debt Problem
According to the U.S. Congress' Joint Economic Committee report called "Vicious Cycle: How Unfair Credit Card Company Practices Are Squeezing Consumers and Undermining the Recovery", credit card debt amounted to $950 billion at the end of March 2009. In the final quarter of 2008, as much as 13.9% of disposable income was used to service revolving debt.
Interest-Free Credit Card Balance Transfer
A consumer with good credit can achieve credit card debt reduction through a series of interest-free balance transfers. A cardholder with $10,000 of card debt at 15% APR stands to save $1,200 in interest payments over a 12 month period with a transfer. Card providers normally charge a 3% ($300) transfer fee. Whilst the balance will increase initially, the non-payment of interest will help to save money. Continue to perform balance transfers until credit card debt is cleared. It is important to regularly request a reduction in the credit limit or the temptation to spend more money could prove too great.
Credit Card Debt Consolidation Loan
A low interest debt consolidation loan could be used to achieve credit card debt reduction. Putting all revolving debt under one roof can achieve the joint objective of reducing debt and monthly repayments. Homeowners should always think carefully before turning unsecured into secured debt. Whilst credit card debt can be negotiated through a debt solution, a debt consolidation loan that is secured on the family home provides creditors with collateral in the event of default.
Filing for Bankruptcy to Clear Credit Card Debt
Filing for bankruptcy under chapter 7 may be the right credit card debt solution for consumers without non-exempt assets. Most consumers can be free of their financial difficulties within a matter of months. Filing under chapter 13 allows a consumer to restructure credit card debt over a 3 or 5 year period. If no disposable income is available after reasonable expenses, it may not be necessary to make a monthly contribution to creditors.
Credit Card Debt Settlement
Debt settlement companies negotiate with card providers to reduce the amount of credit card debt by up to 50%. Credit card companies are vastly more likely to agree to this revised repayment schedule if the debt has been sold-on to a collection agency. Whilst this debt solution helps to alleviate financial difficulties, the amount owed will go up in the short term as debt settlement companies front-load fees.
Debt Management Plan (DMP)
A Debt Management Plan operates differently to debt settlement, which seeks to write-off a percentage of the amount owed. A Debt Management Plan doesn't write-off debt, it is aimed at alleviating financial difficulties through the making of a single, lower monthly payment. The contribution the debtor makes is disseminated to creditors on a pro rata basis. It can take a number of years to pay off all the money owed.
There are a number of credit card debt reduction solutions available for consumers who have no realistic chance of clearing the amount they owe. Always consult a qualified debt counselor before proceeding with any debt solution.
Sources
CreditCards.com
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