Burdened by credit card debt, many people wonder how to find the ideal debt management services. Consumers don’t know what to expect and some even think perhaps somehow their debt can be wiped away by a debt management company.
For many years, we were able to balance one credit account against another. Minimum payments were low with only about 2% of the total balance due as a payment each month.
If you had a credit card with a $5000 credit limit and a balance of $3000, you might have considered yourself in great financial shape.
Your credit card had a 12% interest rate and the monthly payment of $60 seemed a small price to pay. The payment didn’t add much stress to your budget and the credit left on your card provided spending power if you needed it.
Raising The Interest Rates…
When lenders began arbitrarily raising interest rates they also began lowering the credit limits on tens of thousands of credit cards.
These changes were not based on credit worthiness of many of the customers but were methods being used to position the lenders for new laws that would restrict some of their money making ability.
For you, it meant the limit on your account may have been reduced from $5000 to $3500 which reduced your spending power while also giving the appearance that you were charging near the limit of your ability.
Worse, the interest rate changed from 12% APR to as high as 33% and the monthly minimum payment due became $120.
For consumers with multiple credit cards, the changes were devastating to their budgets. People struggling to pay $200 a month minimum payments were faced with increases that demanded $400 or even $600 a month on those same credit card balances.
As the unemployment and underemployment numbers rose, so did the numbers of credit card defaults. Bankruptcy filings rose and credit card debt was listed only second to medical costs as the reason for bankruptcy.
In an effort to avoid filing for bankruptcy and the disastrous consequences it has on credit rating, many people turned to credit card debt management services.
Two Types of Solutions
The ideal debt management services promote two types of solutions. The first is debt settlement on your cards. With this method, the management service (which may be an attorney) negotiates with your lenders on your behalf.
The goal is to arrive at a settlement amount that will clear the debt completely for an amount that is less than the dollar figure owed on the account.
It is important to understand that debt settlement does not protect your credit rating. Your credit file will show that you paid less than owed and that the lender approved that payoff.
Part of the settlement will be closing those accounts and there will be a negative affect on your credit file with the rating agencies. However, the damage to your credit will be less than the ten years a bankruptcy will show in your credit file.
Debt Settlement One Time Payment
If you chose debt settlement for your cards, carefully check the credentials of the credit card management services you are considering.
You will pay a healthy fee for the service and should look for comments about them online and check with the Better Business Bureau in the area where the home office of the service is located.
Debt settlement can save you a significant amount of interest and the worry that goes with trying to meet high minimum payments month after month. A balance of $2000 on a credit card may require only $6-700 to pay off if the lender is willing to settle the account.
If you clearly show an inability to pay due to medical problems or loss of income, the lender may find it smarter to take what they can get than to try to pursue you when they know there is no ability to pay the full amount.
Before you pursue the route of a debt management service that offers to settle your debt for less than owed, you will need to have the financial resources to pay the settlement amount immediately. If that is not a possibility, the next option is a service that provides reduced monthly payments.
Debt Management Service
Another option is a debt management service that provides a reduction in payments which may include interest rate reduction.
This type of service will negotiate payments with your lenders. The goal for the service is to limit the monthly payments to a dollar amount you can afford.
To accomplish this, they will require full information about your debts, your lifestyle and your spending habits.
Unfortunately, debt management services are largely unregulated by law and the industry has been prone to scams and to services not delivered.
However, there are few really serious actors and the one I recommend is the Equifax Debt Wise service
Services that negotiate lower payments do so by guaranteeing your lenders that the monthly payments will be made. Most of them will charge you a monthly fee in addition to the initial fees charged for negotiation.
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To avoid bankruptcy, debt settlement may be an option. As an alternative to non-payment, settlement negotiation may provide a debt payoff at a level you can afford.
Check the background and testimonials available to find the top credit card management service and choose one you feel you can trust to help you pay off your credit card debt.