Don't worry, you may not have the choice to be in your situation, but you do have options on how to deal with your credit card debt. Let's look at all of your options.
This is the worst possible option, but unfortunately many people pick this because it requires the least amount of effort and provides the most short-term peace of mind from the "out of sight, out of mind" perspective.
However, whatever peace of mind you perceive, will be short lived. This approach does not stop the flood of calls from credit card companies, and then collectors, and eventually from collection agencies and maybe even lawyers. You can run, but you can't hide.
Eventually, it will all catch up to you and you may even have judgements issued against you which will garnish your wages; in other words, you will still have to pay, and it may include late fees and penalties.
Your credit score will pay dearly and will drop like a ton of bricks, plus the longer this takes, the later you will be able to begin rebuilding your credit score.
Simply put, do not choose this option, even though it involves doing nothing.
You may think that me mentioning this option is a cruel trick, however, some of you out there are carrying extremely small balances and could actually pay of these balances if you really put your mind to it. If this is you, great. Just do what you can to pay of these debts, get a loan from a family member or friend, sell some things, or call your credit card company to negotiate.
For most of us, this is not an option, so lets move on.
The next option is to call your credit card companies and work out some sort of payment plan.
A payment plan is an agreement between you and your credit card company that states that you will make a lower monthly minimum payment in return for some improved upon terms over a short period of time, usually 12-months, until you can return to making your regular monthly payments. A payment plan might require your signature or an automatic monthly balance transfer payment deducted from your checking account. At the conclusion of the payment plan term, you will return to paying your regular monthly minimum payment, unless you agreed to other arrangements, or paid off your credit card balance during the term of the payment plan.
You might be surprised at how flexible your credit card companies can be when you start discussing a payment plan.
I have seen credit card companies drop the interest rate to 0%, and stop all future overdraft and late fees, as part of the payment plan terms. They may be unwilling to waive fees which you have already acquired, but everything is negotiable.
It is up to you to negotiate the best payment plan. If the customer service rep is not giving you what you want, or feel that you could get, then ask to speak with a supervisor. Granted, there are limitations, but a little assertiveness goes a long way and may get your minimum payment reduced as well.
A payment plan is an option as long as your account has not charged off (over 120-days late) and will preseve your credit score better than other options because it is the goal of the payment plan to get you back on track so you can resume your regular minimum monthly payment.
You should ask your credit card company what the affects will be on your credit score. Will your 30+ days or 60+ days late delinquency still stay on your credit report? You need to ask them in advance, get the terms in writing and negotiate the best terms. A payment plan may just bide you enough time to get yourself back on your feet, or it may just delay the inevitable. In which case you will want to read on about more options.
"BK," as its known in the banking world, is only an option if none of these other options work for you. As this site focuses on the positive possible outcomes, we are not going to cover it in detail, but will instead let Wikipedia explain Bankruptcy. I advise you to fully explore all of your other options presented on this site before taking a serious look at "BK."
By now, you may have already spoken with your credit card companies and they may have already offered you a Debt Settlement offer. Apparently, with delinquencies at an all-time high, credit card companies are taking a pro-active approach by offering debt settlement packages earlier than they have in the past. This is your opportunity to capitalize.
A debt settlement is an agreement between you and your credit card company wherein they agree to eliminate your credit card debt in exchange for an excellerated, reduced payment.
In other words, your credit card company sees the liklihood of you paying back the total amount owed, as very slim. Therefore, they are going to "cut their losses" by accepting a reduced amount from you in a shorter term than you would normally have to pay off the entire balance due. The payback term is usually 90-days to pay off the settlement offer amount.
Let's say that you owe $10,000 and are 90+ days late (delinquent). The credit card company might offer a settlement of 65%, which would mean that you would have to pay back $6,500 within 90 days.
We will go into this in more detail in the next section, and make sure to watch the video where I tell you about one bank that was willing to go as low as 25%! In other words, I was able to pay off a $16,000 balance for only $4,000
There are, however, tax consequences of Debt Settlements, which we'll go over in the Debt Settlement page.
Debt consolidation is much like a debt settlement in that you will be paying off all of your credit card debt obligations for less than you owe and in a shorter amount of time that it would normally take. But the differences are that you will be using the assistance of an outside company who negotiates on your behalf in exchange for a fee, and Debt Consolidation may take anywhere from 2-3 years for you to be free from credit card debt.
All of your debts may also be reduced and put under one new loan with a reduced payment. These fees can vary and the quality of service can border on angelic to the criminal, so make sure to do your research and find a reputable debt consolidation firm that has a good rating from the Better Business Bureau.
I have done some of this screening for you on the approved debt consolidation companies that I put you in touch with via the webforms on this site. This does not apply for all of the advertisements on this site and only applies if you complete the webform. Regardless, you should always exercise your due diligence when selecting a debt consolidation partner, but submitting the webform is a great start to improve the odds that you are working with a quality, honest and professional debt consolidation organization.
In the next section, we'll discuss the best two options, Debt Settlement and Debt Consolidation.