Credit card debt has been a problem for a few consumers since the introduction of the buy now-pay later plastic card. Bank profits from the interest and fees charged to credit card users were high and easily covered the cost of defaults of non-paying card holders.
Credit cards were easy to qualify for and provided what some account holders viewed as money to spend any way they chose.
The landscapes for lenders changed when a falling economy occurred at the same time changes in lending laws were added to protect consumers. The rate of defaults and bankruptcies skyrocketed in 2008 and continue to climb three years later.
The old practice of arbitrarily raising interest rates on current balances is now prohibited. Lenders can impose temporary rate increases when a card holder pays late or misses a payment but can no longer adjust rates upwards on a whim or to counter market conditions and maintain profit at a certain level.
Reducing or eliminating credit card debt has become an obsession with consumers today. Years of spending more than they earned have cause many people to find themselves burdened with high credit card balances.
It can take up to twenty years (in some case even more) to pay off the balance of a credit card if you make minimum monthly payments.
Much of the cost of paying off credit card debt is finance fees. Any amount you pay over the monthly cost of interest on your account is applied directly to repaying your balance.
One of the top ways you can use to erase credit card debt without defaulting on your obligations is the snowball method. You list your credit cards on a piece of paper with a column for the balance due and a column for the interest rate charge on that account. List the highest interest rate at the top and add other credit accounts from the highest to the lowest APR.
Look at your monthly budget and cut back anywhere you can to reduce expenses. Take any extra funds you can find in your budget and each month pay that extra amount in addition to the minimum payment on the credit card with the highest rate of interest.
When that first account is paid in full take the extra amount you pay monthly along with the minimum payment of that paid off card and apply that amount to the monthly minimum payment of the next card on your list.
As you continue to apply the extra amount plus the minimums you were paying on cards that have been paid in full, the amount you can apply to the next card increases. The snowball description is apt as the pace gains momentum as each credit account is paid off faster than the one before it.
If your circumstances have changed so drastically that you know you will never be able to pay the full amounts due on your credit cards, you can negotiate with your lender.
Negotiations take time as the lender needs to believe your financial stress is not a temporary condition but will extend far into the future. The most common accepted reason for lenders to negotiate a settlement is when your health is involved.
If an accident or illness prevents you from working as you have in the past, your income is clearly reduced. Lenders may be willing to accept a partial payment of your debt and then mark the debt as paid by writing off the remainder of the balance.
If there clearly is no way your financial stress is likely to improve, a lender may opt to receive partial payment rather than write off the total amount should you declare bankruptcy.
Unless your debt is very small, you will be required to submit documentation of your claim of inability to pay. Some lenders will refuse to negotiate while others may be open to the idea. You won’t know until you ask them.
Debt consolidation is a method to approach with caution but is listed as one of the top techniques for erasing debt. Credit cards are unsecured debt which means a lender cannot take your possessions because you fail to pay credit card debt.
A debt consolidation loan can be a tool to reduce your monthly payments and interest rates by combining several credit balances into only loan with fixed payments and specific term of months required to pay off the loan.
However, it is not wise to use your home or car to guarantee a loan taken to pay off credit cards. This replaces unsecured debt with secured debt and puts your property at risk.
When all else fails, bankruptcy is a legal option that provides you with a second chance. In a bankruptcy you may be repaying a portion of your debt for a specific number of years with one monthly payment made through the court.
If you choose Chapter 7 bankruptcy, your credit card debt is dismissed and the balance disappears. Of course, your credit cards are cancelled and you will struggle to re-establish credit as a bankruptcy will stay in your credit file for up to ten years.
If you are face with collection calls every few hours demanding payment and high balances you have no ability to pay, bankruptcy is a viable option that will eliminate your credit debt completely.
There are various techniques you can use to eliminate debt on your cards. Some simply move the debt to a loan with better terms and it’s important not to replace unsecured debt with secured debt.
You can find a solution to your debt problems if you carefully research the popular techniques for debt elimination and choose the method that will fit your needs and budget. I would also likle to recommend you to read our section on how to get credit cards with poor credit as well.