Credit card debt relief involves strategies to help you manage, reduce or eliminate your credit card debt, often through negotiation, consolidation or settlement. If you’re struggling with credit card debt, it’s important to know your options. Read on to learn more.
When to consider debt relief
There are many reasons to consider debt relief. Here are some of the more common ones.
High-interest debt: High interest rates on your credit card or other debt might make debt relief worth considering. If your current interest rates are causing your credit card debt to grow, debt relief may help you lower your interest rates.
Difficulty making the minimum monthly payments: If you’re having trouble making minimum payments on your credit cards, this can be a reason to consider debt relief. In some cases, you may be able to consolidate multiple monthly payments into one payment. If this payment is lower than your current payments, you may find it easier to pay down your debt without sacrificing too much of your monthly budget.
Loss of income: Financial hardship due to job loss is another situation in which debt relief might make sense. Losing your job often comes with significant financial uncertainty, and debt relief can put you on the path to regaining control of your finances.
Credit card debt relief options
Credit card debt relief can take several forms. Here are a few of the most common.
Consolidation with a personal loan
You could use a personal loan to roll high-interest debt, like credit card debt, into one monthly payment. This may simplify your finances and, depending on the loan term and interest rate, may help you save money in the long run.
Credit card balance transfers
Transferring credit card balances to a card with a low intro APR balance transfer offer can be a way to strategically pay down debt. If you can pay off all or much of your debt before the intro APR period ends and any outstanding balances are charged the regular APR, using a balance transfer card may make sense.
Keep in mind that for any balance transfer, you may be charged a balance transfer fee. Depending on the balance amount, this is typically a percentage of the transferred balance or a flat fee.
Debt management plans
Credit counseling agencies are typically nonprofits that, in addition to offering financial education and counseling, can help clients get out of debt with a debt management plan. A debt management plan is a structured debt repayment plan negotiated by a credit counseling agency.
The agency negotiates with creditors, potentially for lower interest rates and fees. On a debt management plan, you’ll typically make one payment per month to the credit counseling agency who will make payments to your creditors on your behalf.
This option usually also involves receiving financial education to improve your money management skills, which can help you make better decisions and help avoid incurring more debt.
Bankruptcy
Bankruptcy is usually a last-resort option to pursue if your debts are overwhelming and other debt management strategies aren’t available to you. Bankruptcy involves declaring that you can’t repay your financial obligations and seeking relief through the federal court system.
There are different types of bankruptcy, including chapter 7, which involves liquidating assets to pay creditors and discharging most debts, and chapter 13, which involves creating a repayment plan to pay off debts over time. Bankruptcy can significantly affect your creditworthiness, so it’s important to think carefully about your financial options and consult an attorney before considering bankruptcy.
Beware of scams
Unfortunately, bad actors may attempt to prey on people with credit card debt by making false promises of debt relief and demanding exorbitant fees. Fraudulent debt relief agencies sometimes pose as government organizations or falsely use the names of real businesses like banks or charities to give their schemes the illusion of legitimacy.
The Federal Trade Commission (FTC) warns consumers to be cautious of debt relief scams. Two of the major red flags the FTC identifies are:
- Guarantees that your debt will be forgiven. Because it’s impossible to promise results, no legitimate debt relief agency will make these guarantees.
- Requests for upfront fees before any services are provided. These fees are prohibited by law, so asking you for money is usually a clear sign that the agency is not legitimate.
Being aware of these warning signs can help you avoid falling victim to debt relief scams and help make informed decisions about managing your debt.
Finding the debt relief option that’s right for you
If you’re finding it difficult to pay your debts, know that there may be options available to you for relief. Your debt relief options can depend on many factors, including your total debt, monthly payments, interest rates and income.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
