Paying Down Credit Card Debt
As unemployment rates soar and economic conditions are increasingly unpredictable, more and more people are facing burdensome and exorbitant credit card debt. In shaky economic straits, many will make monthly credit card payments without paying down their debt, so that the interest accumulates. Below are some practical ways to chip away at credit card debt.
If You Can Make Monthly Payments
Borrowers able to make their minimum payments should consider the debt management plans offered by their credit card company, which can help with the following:
- Reduce interest rates
- Create a scheduled-payment plan
- Offer fixed payments
You should be aware of the following things:
- Before contacting your credit card company you should first organize your expenses so that you can provide them and your ability to make fixed payments.
- The credit card company will close your account upon your enrollment in a payment program.
- Your credit score may take a hit, but this may be a better alternative to carrying debt without paying it down.
If You Cannot Make Monthly Payments Avoid Debt Settlement Companies
Debt Settlement companies are exploitative business that will do more harm than good. They never have the borrower’s interest in mind and the following should be avoided at all costs:
- Never pay upfront fees. Large fees are often required upfront, before any service has been provided. New Federal Trade Commission Rules make such fees illegal.
- They may urge you to skip a minimum monthly payment, but never do this.
- They will guarantee success, but do not trust them. Borrowers are often left in a worse position than where they started.
Settle With Your Bank, But Be Cautious
If you are past due on your payments by 30 to 90 days, your bank will contact you with a debt settlement, but be wary and ensure the following if you choose to accept:
- Ensure the settlement fully satisfies your debt. Make sure this is in written in clear and concise language.
- Ensure you understand how the settlement will affect your taxes. The bank will send you a 1099 and it is wise to contact a tax attorney before filling it out. You may end up paying taxes on the forgiven debt.