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To consolidate multiple debts through a Debt Management Plan (DMP). The process of initiating a DMP begins with a credit counseling session. During this 45-90 minute session, you will receive actionable advice from a credit counselor regarding options toward reducing your credit card debt and controlling expenses customized to your specific financial situation.
Two Common Approaches to Credit Card Relief
The most common approach is the Debt Management Plan (DMP). If you carry several high interest rate credit card accounts with significant balances, a DMP can make a lot of sense and provide you with credit card debt relief.
In a typical DMP, your counselor will negotiate lower interest rates and lower monthly payments with your creditors. Additionally, instead of making several individual monthly payments toward various credit cards, you make only one streamlined payment to your credit counseling agency, who then allocates funds properly to your various creditors.
The downside is that any account that goes into the DMP is immediately closed and there is a near-term negative effect on your credit score. However, with consistent regular payments, your score will recover. Completing a DMP takes time – usually three to five years – but the eventual rewards of a debt-free lifestyle and improved credit profile are worth the necessary commitment.
Related to: Credit Card Debt Relief
Debt Consolidation Loans are another common approach. These are loans taken out for the express purpose of paying off high-interest credit card and other unsecured debt. Zero-percent or low-interest rate introductory credit card promotions are commonly utilized in this scenario – but as we all know – those attractive introductory rates don’t stay low forever.
If you think it will take longer than the introductory period to fully pay down your debt, an experienced debt consolidation professional can find you the most attractive debt consolidation loan by negotiating on your behalf for a lower interest rate and monthly payment at various banks, credit unions and other active lenders.
The caveat here is if you qualify – that is, hopefully your credit profile hasn’t been too damaged from late payments, delinquencies and a high credit utilization percentage. Additionally, whereas credit card debt is unsecured (not backed by collateral), debt consolidation loans often are secured, so failure to pay could result in losing your home, car, or other secured asset.
Two More Approaches When Making Payments Has Become Difficult
If you’ve fallen behind on your credit card debt, you may want to pursue debt settlement. In a debt settlement, a creditor accepts a lump sum payment in the area of 50-80% of the full balance owed, as the bank recognizes that delinquent accounts may continue deteriorating toward charge-off status and become worthless, non-recoverable assets.
Though experienced debt settlement companies are experts at negotiating with creditors, they often charge significant fees that eat into the overall savings achieved. Still, despite the fees, damage to your credit profile (settled accounts remain on your credit report for seven years) and the fact that creditors are under no legal obligation to accept settlement offers, debt settlement provides a worthwhile option to many.
Bankruptcy represents the last resort option for those in need of a fresh start financially. For an individual with limited assets to be confiscated and sold to pay off creditors, many debts can be discharged under Chapter 7. For someone who prefers to protect assets, filing for Chapter 13 and arranging for a three- to five-year payment plan of certain credit card debts with the remainder of debts discharged upon completion could make sense. The problem is that bankruptcy remains on a credit profile for ten years, so most ensuing attempts to secure credit at favorable terms will be severely hampered for the better part of a decade.
Talk to a Professional About Credit Card Debt Relief
Contact us here at United Settlement, and we will help you navigate these waters and arrive at the best credit card debt relief approach for your specific financial situation.