A recent article confirmed what many of you may already be very aware of – Americans have more credit card debt now than at any time in history. And it’s not just credit card debt, auto loans and student loans are taking up a huge portion of Americans’ debt these days. So what can you do?
Fortunately, there are several options to eliminate credit card debt in 2017. So we’ll tick through them in no particular order:
1. Pay it Off the Old Fashioned Way
This may seem obvious, but one way to eliminate credit card debt is to simply pay it off. Of course, if it were that easy, you wouldn’t be reading this blog. To be sure, there are various strategies you can use to pay off credit card debt. One method made popular by Dave Ramsey is the “debt snowball.”
Most of these types of strategies have to do with the order in which you attack the debt. For example, you pick the highest rate credit card or one with a low balance and pay it off first, then move on to the next one, etc.
The strategies are numerous. But they may not work for everyone. Most people that accumulate a substantial amount of credit card debt did it for a reason. A reason that may not be over in their lives yet. It’s an ongoing problem. So other options may be more realistic.
2. Debt Consolidation
Closely related to Option 1 above, is debt consolidation. If you have numerous credit cards with balances, you could consider consolidating them into one card or loan with a lesser interest rate.
But then what?
You still need to pay it off before the rate goes up or too much interest accrues or you’ll be back in the same spot or worse. Also, with debt consolidation, you have to be very careful about the terms you’re being offered. This is especially true if it’s a debt that will be secured against your house like a HELOC or mortgage. It’s usually not a good idea to take an unsecured debt like credit card debt and convert it into a secured debt that risks your home.
3. File Chapter 7 or Chapter 13 Bankruptcy
If things get too deep to realistically dig out of, you may have to consider bankruptcy. Chapter 7 is by far the most popular way individuals file bankruptcy to discharge credit card debt. Chapter 7 bankruptcy is the “classic” bankruptcy most people think of when they think of bankruptcy. Essentially, it wipes out the debt completely. But it has some strict requirements and limitations on income to qualify.
Chapter 13 bankruptcy, on the other hand, is more of a reorganization of the debt. It’s often called a wage-earner’s plan because it is more commonly used by people with higher incomes who can’t qualify for Chapter 7. Essentially, your debt will get paid off in 3-5 years under a court-approved plan and what debt can’t be paid off in that time can be discharged.
4. Debt Settlement
Credit card companies and banks stand to lose a lot of money if you file bankruptcy. In many cases, they’d rather get something than nothing. That’s where debt settlement comes in. It can be an alternative to bankruptcy. It is the approach of negotiating a settlement of the debt with each creditor, instead of filing bankruptcy. The amount settled for can often be far less than the balance owed or claimed to be owed. It sounds simple, but it can be fairly complicated.
A good debt settlement attorney can help with the details and negotiations. Often times, the credible threat of bankruptcy by a bankruptcy lawyer can make a difference in debt negotiations. The goal is to settle the debt for a fraction of the balance and move on to the next creditor and do the same until all of your debt is eliminated.
This method can be a very good way to eliminate debt without bankruptcy. To see which of these methods may be best for you, call our office today.