Cutting Credit Card Debt

: Reese Baker & Associates

  Filed under: Debt

cutting debtMost of us carrying too much credit card debt and a the sense of regret that comes along with it. If you are looking for a way out of your credit card debt, there are several options. The key is knowing which option is best for your financial situation.

Snowball

Financial guru Dave Ramsay endorses a debt reduction method he calls the “debt snowball”. Basically, you stop extra payments and only pay the minimums on all but one of your credit accounts; typically, the one with the smallest balance first. Funnel as much of your extra cash that you can afford to that account each month until it is paid off, then move on to the next repeating these steps until you are debt free. While this method  is great for getting people out of debt faster than they would normally, it can be difficult for those with very little extra income or at risk of defaulting on a payment.

Consolidation

Another way to reduce your credit card debt is to consolidate your debts on multiple cards into one account. Transferring the balances to one card can reduce the amount of payments you are making each month and save you thousands in interest payments over time. The trick here is finding a card that offers a 0% introductory interest rate. Once you have consolidated your balances to this one card, take full advantage of the 0% interest and attack your payments as  much as possible. However, there are two drawback with consolidating your debts onto one card. First, you may not qualify for an account with a limit high enough to hold all of your other debts. Second, many people fail to close their old accounts and begin using them again racking up more debt.

Negotiation

You may not know that you have the right to negotiate your terms with your creditor. There are ways to reduce your credit debt directly with your lender, but it takes time and effort. Creditors are often unwilling, at first, to offer up solutions for lowering your debt, but it can happen. The first step is to research debt negotiation tips and draft up a negotiation letter. You want to explain your financial hardship to your creditor and offer a settlement amount equal to a percentage of what you owe. For example, you may request your debt be considered satisfied through a one-time  lump sum of 25% of your balance. Creditors do accept these offers if they feel the risk of you defaulting or declaring bankruptcy is high. However, be sure to get any agreement in writing and outline your credit report should be noted as ‘satisfied’ or ‘paid  in full’ and not ‘settled’.

Bankruptcy

For those struggling with financial hardship or the risk of severe debt collection consequences, filing for Texas bankruptcy can be the easier path to debt relief. Through a Chapter 7 bankruptcy, you can eliminate your debts in as little as six months and be back on the path to financial freedom. If you don’t qualify for a Chapter 13, you can resolve your debts in a few short years through a debt repayment plan that is typically significantly less than what you would have paid outside of bankruptcy. If you are considering filing for bankruptcy, be sure to consult with a Texas bankruptcy attorney about your situation to review if it’s the right method of debt relief for you.