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Budget advisor – is credit card debt settlement effective

Budget advisor/ wealth advisor – US consumers turn to credit card debt settlement services and chapter 13 bankruptcy when financial difficulties set in. In a report provided by TransUnion, credit card delinquency rates were highest in Nevada (1.74%) and lowest in North Dakota (0.67%). In the last 12 months, 18 million US citizens have failed to make their monthly payment at all, according to the National Foundation for Credit Counseling.

Budget advisor - is credit card debt settlement effective

What is the Objective of Credit Card Debt Settlement?

According to a budget advisor or wealth advisor, the objective of credit card debt settlement is to negotiate with creditors in order to agree to a more affordable repayment plan. In doing so, they attempt to write off up to 50 per cent of outstanding debt. Payments are made directly to a debt settlement company rather than the card provider. Administrative fees for managing the service are taken directly from contributions.

Credit Card Debt Settlement Fees

Whilst credit card debt settlement can potentially save a consumer up to 50 per cent, management fees reduce this saving. The real saving is less than would be achieved with chapter 13 bankruptcy because providers charge 15 per cent of the cumulative debt as a front-loaded fee. Management charges are paid before the credit card debt so overall indebtedness initially increases.

Does Credit Card Debt Settlement Really Reduce Creditor Harassment?

Delinquent accounts that have been sold to collection agencies are most suited to credit card debt settlement. This is because debt is sold cheaply for 20 to 30 per cent of the amount owed; an offer of 50 per cent equates to a profit. Situations where the card provider is still pursuing the debtor may intensify creditor harassment, not to mention lower a credit score. US consumers with non-exempt assets, such as a second home, may be better off seeking court protection with chapter 13 bankruptcy.

Why Choose Chapter 13 Bankruptcy in Preference to Credit Card Debt Settlement?

According to a budget advisor or wealth advisor, the number of consumers filing for bankruptcy exceeded 1 million during 2008. Whilst the majority filed for chapter 7 bankruptcy, many consumers opted for chapter 13 bankruptcy rather than credit card debt settlement. This is not only because they were able to keep non-exempt assets, it is because they were afforded court protection from creditor harassment.

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US consumers with non-exempt assets that they wish to protect may wish to write-off debt with credit card debt settlement. The majority of consumers are likely to be better served by pursuing chapter 13 bankruptcy. Credit scores are affected in the same way, but the debtor enjoys full court protection from further collection activity.

Helpful Credit Card Debt Reduction Solutions

Budget advisor or wealth advisor says 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 Charge Card Debt Problem – Importance of Credit Card Debt Reduction

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 – Clear Credit Card Debt Through Interest Avoidance

A consumer with good credit can achieve credit card debt reduction through a series of interest-free balance transfers, adds a budget advisor or wealth advisor. 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 – Reduce Credit Card Debt Over a Defined Term

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

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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 – No More Financial Difficulties in 36 Months

Budget advisor or wealth advisor further adds that the 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) – Credit Card Debt Reduction and Control

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.

Credit Card Debt Reduction Solutions – Debt Management Plans and Credit Card Debt Settlement

There are a number of ways to clear credit card debt that are available for consumers who have no realistic chance of reducing the amount they owe. Always consult a qualified debt counselor before proceeding with the best debt solution.