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Resolving Credit Card Debt

Although there are a number of possible ways to resolve credit card debt, including filing for bankruptcy, there is no one-size-fits-all answer. It’s important to consider all your options and base any choices you make on your unique financial circumstances. 

Negotiate an Arrangement

There are 5 types of arrangements credit card companies may be open to when it comes to getting credit card debt under control:

  1. A lump-sum settlement means negotiating a single-payment amount to settle some or all of the debt.
  2. A workout arrangement typically involves the credit card company reducing or eliminating the interest rate as well as reducing the minimum monthly payment amount. 
  3. A forbearance program is similar to a workout arrangement and provides short term relief from interest rates and late fees. This type of settlement is usually facilitated in emergency situations, where the debtor is unable to make full repayments for several weeks or months.
  4. A debt-management program with a counselor from a reputable nonprofit agency can help you manage your debts and negotiate with creditors on your behalf. 
  5. Debt settlement programs are usually arranged as a consequence of failing to pay your debt for a number of months, resulting in the credit card company readily accepting a lower lump-sum payment. This option will have a significant impact on your credit score.

Before you consider any of these options, it is important to first examine what you can afford to pay. A debt settlement can have tax consequences, so you may wish to consult with your accountant prior to entering into a settlement.

Work out What You Can Afford

You should seek a breakdown of what you owe in credit card debt before working out what you can afford to pay back. When you have been missing payments, you may find a lot of what you owe is actually attributable to late fees or fees for exceeding your credit limit. 

Be realistic about what you can afford to pay toward credit card debt. If you offer to pay an amount that puts your mortgage in arrears or you can’t feed your family, you are overstretching your budget. Leave yourself room in the budget for emergencies, otherwise you may end up missing payments and getting into further debt. 

Speak to Creditors

When you speak to creditors, be upfront about your financial situation and your ability to afford repayments. In many cases, creditors will work with you because it means they are receiving some sort of payment. You are not obligated to accept the first offer that is proposed. Think carefully about how much money you can safely allocate for repaying credit card debt. 

If you do come to an agreement that meets your needs, make sure to get everything in writing. You may have your work cut out for you when negotiating with credit card companies, but, if it results in a better repayment arrangement, the reward is often worth the effort. 

When your credit card debts are out of control and negotiating with the credit card company is not an option, seek consultation with H. Lehman Franklin, P.C., at 912-764-9616 or email us at info@hlfranklin.com.