Friday, February 4, 2011

Credit Card Debt Relief: How Does It Work?

Debt settlement is not for everyone, but is the most sensible form of credit card debt relief in many ways. It allows you to rid yourself of unsecured debt under your own power, while avoiding the ramifications bankruptcy presents. But for those with severe hardships and no capability of sustaining monthly payments, bankruptcy is the better option. It is important to have your unique financial situation thoroughly accessed before deciding which way to go.

What is debt settlement and how does it work?

Debt settlement is the act of negotiating with your creditors to reach settlement agreements on delinquent accounts with outstanding balances. Once an account goes past due, creditors view it as a liability and generally are willing to accept a lump sum of money amounting to less than what you actually owe. On the contrary, creditors are unwilling to settle for a lesser amount if you are able to keep up with your minimum payments each month. You have to remember that they are in the business of collecting interest from you over long periods of time. Therefore they won't agree to settle for less if you continue paying them every month. Typically a minimum payment on a credit card is calculated to keep the consumer in debt for a 12-15 year period.

The problem is that most people carrying unsecured debt do not have large sums of money available to put towards these settlements. Even a 33.3% settlement on a $3,000.00 account will require $1,000.00 to settle the account in full. For this reason, many people decide to seek the services of a professional credit card debt relief company. These companies offer programs which make this process affordable to the average consumer.

When enrolled in a credit card debt relief program, you are expected to make a payment each month into an account set up in your name. The sole purpose of this account is to save money for settlements. In the mean time, a team of debt negotiators work directly with the creditors to reach settlement agreements on your behalf. Once enough money is accumulated, delinquent accounts will be settled one by one until they are all settled in full. Credit card debt relief programs typically take 1-4 years to complete. The length of the program really depends on how much you can afford to put into it each month (the shorter the program the higher the monthly payment and vice versa).

One big misconception about debt settlement is that it ruins your credit score. In many instances that statement simply does not hold any truth. As I stated earlier, debt settlement is designed for people with accounts that are already delinquent or past due. So if a consumer has already been missing payments, the damage has already been done to his or her credit score. The only time debt settlement damages a credit score is when a consumer, who is in good standing with their creditors, decides to go delinquent. Otherwise, credit card debt relief programs have a tendency to improve ones credit score in the long run. Remember, being close to or above your credit limit tends to have an adverse affect on your credit score as well. So getting everything settled can only help improve your situation.

Now that you know a little bit about the debt settlement process and what it entails, I am sure you are wondering how to go about finding a professional debt service company you can trust. It is no secret that there are debt settlement companies out there that do not do the right thing. These "fly by night" companies generally charge an upfront fee before they even do anything for you. If you encounter a company that asks you for an upfront fee stay away! Reliable credit card debt relief companies with reasonable and beneficial fee structures do exist...

There are a few other specific credentials you should look for when deciding on a credit card debt relief company. The company you choose should have a high rating with the better business bureau (BBB), with no complaints or lawsuits filed against them. It is also important to be with a credit card debt relief company that has attorneys on staff.

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