Credit card debt relief offers a reduction in credit card interest rates, or in some cases, includes eliminating a portion of the balance on a credit card. The point of credit card relief is to make credit card debt easier to pay and to save money, but what’s the right debt relief option for you? The good news is that you have several debt relief options to choose from. The bad news is that if you make the wrong choice you could end up in worse financial shape in the end. After reading this article you’ll have a clear understanding of what your options are and what your best solution is.
Credit card relief can be achieved through a multitude of ways, including by utilizing a debt settlement program or obtaining a loan. According to Bankrate.com, “Americans’ tappable equity — the amount they’re able to draw in cash from increased home values — jumped by $380 billion (7 percent) in the first quarter to $5.8 trillion”. Source: https://www.bankrate.com/mortgages/home-equity/americans-have-record-home-equity/
What this means is that many Americans have the debt relief option available to borrow from the equity on their home, taking out a HELOC (Home Equity Line of Credit) to pay off their credit cards. Relief can be achieved with this HELOC option, but you’d be swapping your unsecured debt for secured debt, putting your home at risk over credit card debt. Is it worth it? Not if you can avoid this! The benefit of consolidating credit cards with a HELOC is that you can replace your high interest credit card payments with one low interest and low payment HELOC payment. But what happens if you lose your job in three years and can no longer afford your HELOC payments? Yeah, you could lose your home over credit card debt!
Credit card consolidation loans can be obtained through a bank, debt relief company or a lending institution, which may offer you a better solution than a HELOC, but before deciding let’s take a closer look at credit card debt relief programs.
Debt relief programs, like debt settlement, could reduce the balances on a credit card debt.
The main downside to debt settlement is that a credit card settlement would hurt a person’s credit score by up to 200 points, due to the debtor having to go delinquent on monthly payments.
Why do banks agree to a settlement? Banks give up on collecting on the debt after 4-6 months of not getting paid anything. The bank will then write the debt off as an uncollectible debt, where they then get reimbursed 100% of the money owed through a tax credit, banking insurance will then pay the bank additional money, and to top it off the bank will get extra profit byselling the account to a collection agency. Collection agencies only pay 10-20% of the balance on a debt to purchase it,(which is pure profit to the bank). The debt collection company is then willing to settle a debt for around half, but to them they are earning more than 100% profit. Everybody comes out on top with a debt settlement credit card relief program, but this option is only for a debtor that’s already had their credit score negatively affected.
If you have a 700+ credit score, taking a 200 point hit can make debt settlement – not worth it! Is your credit score under 700? In this case debt settlement could be your best option. But before settling a debt, consider debt validation.
Debt Validation is the Best Way to Achieve Credit Card Debt Relief if Accounts are in Collection Status
At this point you have nothing to lose. You can use debt validation before settling your debt because there’s a chance you could save more money and get the debt off your credit report. Validation plans include a money-back guarantee, so what do you have to lose?
In 2019, debt validation programs are now also available. These plans will dispute the debt collection account by forcing the collection agencies to prove that they have complete and accurate records that they are required by federal laws to maintain. In many cases the collection agency can’t prove the debt is valid, resulting in the consumer not having to pay the debt. In some cases, debt validation can even lead to the account coming off the consumer’s credit report entirely. For this reason, many debt validation programs will even include credit restoration and a money-back guarantee. You’d be surprised, but in most cases a collection agency can’t prove the debt is valid. If you think about it, that does make sense. Banks carelessly sell credit card debts after getting reimbursed 100% of the money owed, so they don’t take the time to transfer complete and accurate records. Also, debt validation disputes the amount that the collection agency claims a person owes. The collection agency must then prove the balance is accurate, but they can’t because it’s not accurate. The consumer never agreed to all the late and collection fees, along with any other unauthorized fees that have been added in.
Debt Relief programs come with benefits and downsides. It’s important to understand the pros and cons of each option before making a financial decision about which program to join.
Why Choose a Debt Relief Program to Resolve Credit Card Debt?
- Pay less than the full amount owed or pay nothing in some cases after debt validation
- Have an attorney provide you FDCPA and lawsuit defense, along with putting a stop to creditor harassment
- Make a single monthly payment for all your debts
- Become debt free in 24-48 months on average
Downsides to All Credit Card Debt Relief Programs
- Credit scores are negatively affected and derogatory marks can get inflicted on credit reports
- Not all clients will successfully make it through a debt relief program
- A person could owe taxes on the amount saved with debt settlement
- The biggest downside is that you could get sued for not paying your bills in full every month, but if this worst case scenario occurs the debt can still get settled for less than the full amount owed (lawsuits are only an issue if they don’t get responded to, but many credit card lawsuits can get dismissed because they are flawed, inaccurate and even fraudulent)
Credit card consolidation mainly involves taking you out a single personal loan for paying off existing credit card debt. You can consolidate credit cards with a balance transfer card, home equity line of credit or a personal loan. You will need a high credit score to qualify for debt consolidation. Low-interest loans require at least a 700-credit score. If your credit score is under 700 do not apply for a debt consolidation loan because this could lead you deeper into debt.
If you get a loan with bad credit you’ll pay the highest possible interest rates, loan origination fees and all types of unnecessary charges may get added in, resulting in your debt becoming more expensive than it was.
The only time you should get loan with bad credit is if the purpose of the loan is to help you improve your credit score. Paying back a loan offers an excellent way to establish positive payment history and improve a person’s credit score.
Benefits of debt consolidation for credit card relief
- Improve credit scores
- Consolidate payments into one
- Reduce interest rates
Downsides of debt consolidation loans for credit card relief
- Minimal savings, as you are only saving money on the interest (also, don’t forget to incorporate the debt consolidation loan’s fees)
- Balance transfer cards offer you a short timeframe to repay the debt, and if you fail to repay the debt within this introductory-rate period the interest rate shoots back up!
- Home equity loans that are used to pay off high credit card debt are swapping your unsecured debts with a secured debt, putting your property at risk!
- On average, debt consolidation keeps you in debt for 5-7 years (the average debt repayment period)
If you are looking for financial advice or assistance with credit card debt relief or debt consolidation, call Golden Financial Services today at (866)-376-9846 or info@goldenfs.org.
