Credit card debt relief options

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With inflation and interest rates on the rise, it’s no surprise that so many Americans are turning to credit cards for support. Credit card debt in the United States is now at $986 billion, causing many people to feel overwhelmed with debt.

Thankfully, there are credit card debt relief options available to alleviate your financial burdens and make strides toward becoming financially stable. Credit card debt relief programs vary and are personalized to your situation. However, some of the options carry risks.

In this guide, we’ll go through everything you need to know about credit card debt relief, the steps to take and the risk associated with getting out of debt.

Key takeaways:

Credit card debt relief can help you pay off a balance you owe.
Credit repair counselors can help you manage your debt, create a budget and provide available resources.
The five types of credit card debt relief are credit card balance transfer, personal loans, debt consolidation, debt reduction plans and bankruptcy.
Credit card debt relief can affect your credit based on the type of relief you choose and your debt balance.
It could take several years to repair your credit depending on the amount and type of debt.
Credit card debt relief comes with risk, including scams, hidden fees, owing taxes and ending up with even more debt.

Table of contents:

What is credit card debt relief?
How do I know if I need credit card debt relief?
How to get out of debt
Types of credit card debt relief
How to navigate credit card debt relief
Credit card debt relief risks
Does credit card debt relief affect my credit?

What is credit card debt relief?

Credit card debt relief is assistance with paying off a balance you owe. While debt relief doesn’t erase your debt, it does help adjust the repayment terms. Some credit card debt relief options include working with your creditor to grant lower interest rates, creating a payment schedule that lowers your monthly payments and pursuing debt consolidation.

Credit card debt relief vs. debt forgiveness

Credit card debt relief involves taking steps to make debt and repayment manageable. Credit card debt forgiveness is when some or all of the outstanding balance of a loan or line of credit is forgiven and doesn’t need to be paid back. However, credit card debt forgiveness is not a silver bullet that erases all your debt, nor does it come free of potential risks, but the two strategies can work together.

For example:

Danielle owes $20,000 on her credit card, and she hasn’t made a payment in over five months.
She reaches an agreement with her credit card company to pay $12,000 in installments if she pays a lump sum of $3,000 now, which means $5,000 of her debt has been forgiven.
By paying back the rest in installments, she’ll relieve her debt, and her credit should improve over time, all things being equal.

Keep in mind that not all creditors forgive or settle debts, and it could negatively affect your credit. You may also have to pay taxes on the forgiven debt.

How do I know if I need credit card debt relief?

To determine if you need credit card debt relief, you should evaluate your specific financial situation. Keep in mind that if your debt can be repaid by making small changes in the way you spend, that’s always the best route. But if you’re budgeting meticulously and barely staying afloat (or you’re sinking), you may need to seek help.

Here’s how to know if you’re a candidate for debt relief assistance:

Your total unsecured debt is half or more of your gross annual income: If you add up your debt across your credit cards, personal loans and medical bills, and the total is more than half of your annual gross income, debt relief might help you get back on track.
It’s a struggle to repay your unsecured debts, even when you budget like a champ: If you’ve cut your spending to the bone and still cannot make your debt repayments, continuing to struggle is often a slower, insufficient way to improve your finances and get back on your feet.
Multiple creditors have sold your debt to collection agencies: Debt collectors can be ruthless and difficult to work with. Sometimes setbacks and unexpected bills happen and some of your debt may have reached a collection agency. If you’re at this point, getting help negotiating with debt collectors can be a huge relief.

How to get out of debt

If you’re buried in debt but don’t know where to go, take the following steps. You might be able to get relief sooner than you’d expect.

Here are the following steps you should consider after evaluating your situation:

Speak to a credit counselor: Allow someone who is familiar with debt relief options to help guide you to an individualized plan. A reputable credit counseling organization will discuss your financial outlook with you. They’ll make recommendations on managing your debt and budgeting, plus share available resources.
Research all your options based on the consultation: Ask the counselor for trustworthy educational resources, and take time to look into the options the credit counselor gives you. Make yourself familiar with them and weigh the pros and cons. Be sure to know the concrete steps of each option and how they’ll impact your unique situation.
Select a route that works best for your situation: Once you’ve reviewed debt relief options—and perhaps had a follow-up credit counseling session—make a decision and move forward. Select the route you want to take, then formulate a concrete plan. This will help with relieving credit card debt as you make consistent progress.

Types of credit card debt relief

There are several options when it comes to credit card relief. In general, it takes three to five years to see major improvements in your credit through debt relief programs, but putting in the time and effort now can help you in the long run. Here are the common types of credit card debt relief.

1. Credit card balance transfer

If you have high-interest debt on a credit card, you can transfer the balance to a different card with a lower interest rate. By paying less in interest, more of your payments will go toward the principal balance, allowing you to pay off your debt faster.

When making a balance transfer, check to see if the new card offers a low introductory interest rate. An introductory interest rate, which could be as low as zero percent, usually lasts for a certain period of time, such as six to 18 months.

Keep in mind that any late or insufficient payments can invalidate these lower interest rates. If you think you can pay off a good part of your debt within that time, a transfer might be a wise choice. A fee for transferring a balance is common—usually about 3 percent of the balance amount. If you have a good credit score, this fee might be waived.

Pros of balance transfer	Cons of a balance transfer
Can provide a much lower interest rate, making your payments more manageable	Might require a good or excellent credit score
Usually a convenient process	If you don’t have a good credit score, the fee to transfer might be expensive
Combines many payments into one if you transfer multiple balances	Once introductory interest rates are over, the interest rates could be higher
–	New purchases won’t be interest-free like the balance transfer
–	Can be complicated to put your payments toward your balance transfer vs. new purchases