Any effort to successfully resolve credit card debt should start with understanding all of the debt solutions available. There are limited options for dealing with unmanageable debt. You will become familiar with the benefits and drawbacks of each of the below methods throughout our debt relief program education. We thought it would be a good idea to start out with a review of the core solutions covered in the CRN debt relief program
Readers will have different view points for deciding which debt solution best suits the financial difficulty each is experiencing. Some people are even emotionally committed to “hate on” a particular debt solution (cough… bankruptcy… cough). I will touch on some of the different view point’s people drift toward, or away from, as they learn more about debt and credit and their ability to deal with both, but more on that later. For now, let’s establish this fact:
The largest contributing factor to the decision making process about what step(s) can be taken to deal with debt struggles should be; the math.
What debt relief strategy will work for me? Plain old boring arithmetic will generally dictate which approach, or combination of debt relief strategies, will help your situation the most.
Your monthly cash flow.
We touch on the basics of how to weigh your money and your debts in order to identify what type of debt solution you can afford in the report titled Calculating your debt relief options.
Start by adding up your unsecured debts. Total your monthly minimum payments for those accounts, and then compare those payments beside your monthly income and cost of basic living expenses before progressing through our debt relief guides. This recommendation is made so that you can better understand how the debt solutions covered throughout this program would apply to your individual cash flow capabilities.
Some readers will not want to wait to get started reviewing all of the education and information, and that’s okay. You have the ability to skip ahead to any section or report, and even start posting questions and comments. In fact, some readers will be well past the point of considering whether consolidating debt or a credit counseling service is an option, because your debts are in advance stages of delinquency. This would mean workable solutions may be limited to filing bankruptcy, or avoiding bankruptcy through creditor negotiations and debt settlement.
The following briefly summarizes how to weigh your current income and monthly cash flow and compare your financial ability with legitimate options for debt relief.
Credit card consolidation loans help with affordability.
This debt management option keeps you in control and is a non confrontational approach to help you get out of debt quickly. Credit card debt consolidation works when you are able to qualify for a lower interest loan that is large enough to pay off your higher interest debts like credit cards.
With the credit card consolidation loan comes the benefit of a lower monthly payment and the convenience of sending money to one lender instead of several. Using consolidation as a debt solution to resolve a high debt load is best when you have a dependable source of income and can keep your commitment to pay down debt while not creating new debts.
Consolidating credit card debt into a lower interest loan with a single payment can solve a monthly budget shortfall. This should create a monthly cash surplus that can be used to pay down the consolidation loan quicker. As an alternative to paying the consolidated debt down quicker, you can also set aside money in savings so that you can pay cash for unexpected expenses instead of using credit. If your credit card debt consolidation effort does not yield extra cash flow for savings each month, and you resort to using the credit cards again to cover monthly expenses, you may soon find credit card consolidation only gives you a temporary debt solution. You may in fact be reading this after learning this first hand.
Debt Roll Up – Debt Snowball – Debt Pay Down. You know… discipline.
This debt solution works when you have a dependable and predictable income combined with a disciplined monthly budget and spending outline that you can confidently commit to.
Establish if you can consistently pay 20% over your required monthly minimum payment toward just one of your unsecured debts each and every month. If you can do this consistently while maintaining all of your other monthly obligations than a debt roll up (sometimes referred to as debt snowball, debt stacking, debt pay down) approach can work for you. Review the Debt Roll up report and create a graph similar to the visual chart you see. If you have the monthly cash flow to apply this strategy on debts you are still current with, you may be surprised with how quickly you can pay off all of the credit card debts you list. If this debt solution can work for you it may motivate you to take the same approach to quickly pay off car loans, student loans, or even a mortgage – once you completely pay off higher interest credit card debts!
An innovative technology company, or five, have come up with really great online tools to help you in your efforts using a roll up strategy. One of them I like a lot is Ready for Zero. RFZ has a couple of different tech ways they can work with you. You can automate your snowball debt solution and simplify the process. Use their smart phone apps and more. Check them out if your finances have not reached a place where debt roll up has to be crossed off the short list of debt solutions.
Debt consolidation with a Credit Counseling Service.
You have to be able to qualify for this debt solution. Not with a decent credit score and debt to income ratio like when seeking debt consolidation loans. But you need to make sure your creditors participate in these repayment plans (most unsecured lenders do). It is a method for consolidating credit card debt into one payment through a DMP (debt management plan) traditionally available through a nonprofit credit counseling agency. Run your monthly budget numbers and see if this debt solution would work for you.
Will your current cash flow allow you to pay roughly 2.1% of your current credit card balances monthly? If yes, look into consolidating your bills with a credit counseling agency. You can lower your monthly payments through credit card interest rate reduction. There is a great deal more to learn about debt management plans offered through credit counseling services. Additional information can be found in those related sections of our debt relief program.
If you would like to speak with a counselor at a nonprofit credit counseling agency call (888) 317-8770.
Credit card debt settlement and negotiating for less.
This strategy requires you to accumulate money and settle your debts (credit cards mostly) over a reasonable time frame in order to keep from filing bankruptcy.
Can you accumulate money from monthly cash flow and other resources in order to raise a portion of your current credit card balances over the course of a set period of time? If so, negotiating lower balance pay offs with creditors can work for you. The process of credit card debt settlement is predictable for the most part. A large part our debt relief program is dedicated to helping you better understand this debt solution. Debt settlement is not complicated. But it does require you to be informed, and to be a participant in the process. Whether you negotiate the deals yourself, or request professionals to settle credit card and collection accounts for you, take the time to understand this option thoroughly.
Debt settlement candidates are encouraged to begin this process by completely reading all of the debt settlement section of our free online education.
After you have read our complete series about negotiating debt for less, you will know that you should try to raise roughly half of your debt totals over the shortest amount of time possible.
Debt settlement is the more confrontational approach to debt relief, but it can help you avoid bankruptcy, and the quicker you are able to negotiated and fund settlements, can help you avoid being sued for collection.
Get started with out debt settlement guide.
Chapter 7 & Chapter 13 Bankruptcy.
This option is regarded as the nuclear debt solution – the last resort. Filing chapter 7 or 13 bankruptcy can help you get freedom from debt and more immediate relief than other options and is legally binding on your creditors:
Can you qualify for chapter 7 bankruptcy given your states income means test? Many people will look at all other available options before finally contacting an attorney about bankruptcy. Many readers are here because they want to avoid bankruptcy. At the conclusion of your full review of the debt relief program education we have laid out for you, you may learn that a chapter 7 bankruptcy provides the most immediate and lowest cost relief from your debt troubles.
You should speak with an attorney that specializes in bankruptcy to learn more about how this option can benefit you. Most bankruptcy attorneys will offer an initial consultation at no cost. In fact, virtually every form of debt solution you could look into will have someone will to talk with you about it for free. There is really no excuse for not looking into each debt solution – that you can afford – by reaching out to professionals.
Speaking with a bankruptcy attorney does not mean you are filing for bankruptcy, the consultation is free, so do it. Read this guide about what to look for in a bankruptcy attorney.
Doing nothing about your credit card debt.
If you’re not paying debts now, or soon will not be able to, doing nothing at the moment can be a temporary and necessary part of your debt solution plan.
Not being able to come up with a realistic and workable plan to tackle debt is not that uncommon. There are many situations where doing nothing for a few months, while you wait for your situation to stabilize, will make perfect sense. Doing nothing is not a debt solution, but can often be better than committing to a debt relief path now, only to be forced to leave it for another in the near future.
2 examples where doing nothing with your credit card debt at the moment could make sense:
- You were laid off or lost a job and are currently looking for work. If you return to work soon you would be able to qualify for credit counseling or have the ability to accumulate money to settle debts that went unpaid while you were unemployed.
- Your medical concerns have created large debt. Your condition has not fully stabilized which may mean the full extent of the medical bills is not yet known.
Debt solutions can be simple and straight forward. Some solutions require you to meet a set of qualifications. Other debt solution methods give you flexibility. There are non confrontational approaches, and ways to get out of debt quicker that require more of your personal participation. Our debt relief program provides detailed information and resources for evaluating and assisting you with all of the above debt solutions.
If you have questions, or would like to make some comparisons of how any of the above debt solutions would help you, post in the comments below for feedback. You can also reach me on the phone at 800-939-8357, and choose option 2, or submit a consultation request.
Continue on to the first debt relief program section – Debt Consolidation
- Michael Bovee:
02 Mar 2013 The following was submitted to the site as a reader question about doing nothing about credit cards in collection to avoid bankruptcy. I am posting this as a comment and then my reply in order to consolidate content on the site. "Live in Los Angeles and am in collections for several credit cards that went unpaid since the economic downturn (perhaps totaling under 8,000 without the discounted settlement offers) - receive regular phone calls from Portfolio Recovery and others which I ignore (mail from collection agencies have diminished). And I also have an emergency room visit charge that went to collections. Was recently served on Feb 11 2013 with lawsuit from Resurgence Capital LLC, Nathan A Searles, Resurgence Legal Group Cypress CA for my Wells Fargo Bank NA VISA credit card debt for 2953.66 plus 10% interest per annum from 5/31/11. My income for 2012 was under $5500. This is income from twice a year spring and fall temp service job for approx $2000 that are direct deposited. Ongoing self employed office work for $3000. (After doing my TurboTax online with both my W-2's and 1099 I will have to pay $49 tax this year.) Have checking/savings acct with Wells Fargo. Savings account in credit union in Hawaii under $150. Am a named partner in a WFB bank business checking account. Did a Chapter 7 bankruptcy on my own in 2003. Is doing nothing advisable? Don't want to deal with going to court at all and can try my best to judgment proof myself, but eventually that may be more problematic. Can my twice a year temp service income be garnished even though they are not regular weekly paychecks? Can my Hawaii credit union account be levied? Should I consider doing another Chapter 7 bankruptcy, when the time frame allows, to avoid further collection activity down the road considering the interest rates. I received one collection agency notification that the debt was already too old for them to file suit but that my credit score (not really my concern at this point). - Michael Bovee:
02 Mar 2013 With a total debt owed out to collection agencies of 8k, and without the ability to come up with money for settling the debts, or otherwise resolve them, doing nothing for a little while longer can make sense. Like I mention in the above post, doing nothing is not really the best debt solution (or really solving anything), but it is a temporary plan. And with debts past the SOL with no immediate concerns for recovering your credit report or score, doing nothing with some really old bills will prove the right debt solution. If you are out looking for more work and do increase your income, and continue to live as frugally as you must be now, saving up money as quickly as possible to settle your Wells Fargo and other collection accounts, can help you avoid filing bankruptcy again. While you are saving up, if you wanted to bite the bullet and file chapter 7, you would have the filing and attorney fees saved up. The judgment debt is not going to go anywhere, so if you do end up past the SOL for other collection agencies to sue, you will still have this one to contend with. You can settle judgment debt like collection accounts, but the settlement amount is typically higher. Is your monthly income situation one that you think will improve in the future? - MP:
05 Mar 2013 Yes, I do expect my monthly income situation to improve, but realistically not soon. How much does it cost to file Chapter 7 and is it feasible to try to do it myself again to avoid attorney fees? I am concerned about garnishment efforts - is my situation as described vulnerable to that? What is the time frame for the judgment going through and bank levy/garnishment action to commence? And is my out of state credit union bank account at risk? Thank you for this invaluable service you offer. - Michael Bovee:
05 Mar 2013 MP - Your situation does not sound overly complicated. Filing bankruptcy without an attorney is something to consider. If you filed bankruptcy yourself before, you will probably not have much difficulty. Bankruptcy laws changed in 2005, so it will be a little different. You now have to get a certificate of pre and post bankruptcy counseling which is available from different gov approved agencies, most of which are nonprofit credit counseling services. You can call a counselor and get that started at: 888-317-8770. Just mention you are calling about pre-bankruptcy counseling. You have already been sued. If you do nothing with that, you will end up with a default judgment for an inflated amount based on attorney and court costs. An attempt to levy a bank account in order to collect could occur within weeks of a judgment. Starting the bankruptcy process (filing the petition), and notifying the attorney suing, will stop the lawsuit in its tracks (or judgment). The costs of bankruptcy will will be several hundred dollars even without the attorney fees related to hiring your own attorney. With your limited income you may qualify for low income legal aid assistance with the bankruptcy, so look up some resources for that in your area of California. Los Angeles will likely have several of these types of offices. Yes, it is possible that an out of state credit union would be at risk of a bank levy. It is less likely than having your account around the corner get hit with a levy though. - Lindsay:
14 Jul 2013 Hello, Stumbled across your site while trying to find relief for court cost (not related to credit cards but for custody of our kids). In November of 2011 my husband was laid off. We used credit cards, all our savings, the small amount of money I made, and the little bit of unemployment my husband received to live on. During this time we fell behind a lot. We could only afford to take care of our needs. Now we both have better jobs and are needing to back on track so we can own a home. Together we have about $3000.00 of credit card debt, and $2000.00 in medical debt. I completely forgot we'd used my cards during this time until I received a call from an attorney. It was never my intent to not pay but it seems like we can never catch a break. If it's not our lawyer needing money to proceed it's something else. I am not sure where to begin and what steps to take. I hate talking on the phone due to the fact I hate being confronted and collectors are usually rude. Please advise on where I should start reading on your site. God Bless Lindsay - Michael Bovee:
15 Jul 2013 Lindsay - Can you tell me if all of the credit card and medical debt is in later stage collections (with a collection agency, collection attorney)? Are any of the debts still with your original creditors? Has the attorney office that contacted you sent you a letter? Is that attorney licensed in your state (look at the address given on the letter head - it may list several locations)? Answering those questions will help me direct traffic to the resources you need. - Rose:
17 Aug 2013 My husband and I are self-employed architects; we made most of our income from buying, renovating and selling houses in Florida. In 2005 we had our first child, followed immediately by Hurricane Wilma and the beginning of the downturn in the real estate market (at least in Miami). Lost income from clients who could no longer pay, plummeting real-estate values and a non-existant job market for architects left us with virtually no income for four years. We used our credit cards and savings, my 401k, sold our home at a huge loss, all with the idea that the market had to pick up soon and we would then be able to pay off our debts without filing for bankruptcy. We were terrified of bankruptcy because we depended on being able to get a mortgage to finance home purchases and renovations, our main source of income. In retrospect not filing was a mistake, the market never recovered in time for us and we accumulated a massive amount of credit card debt which we could not pay, somewhere around $50-60,000. Much of this has been charged off or we negotiated settlements; however we have two judgements, Amex for $1136 and Chase for $8566, which I'm going to try and settle, and a Citibank account that was bought by Asset Acceptance, original balance of $16,166 now pumped up to $26,340. My first question is how to handle Asset Acceptance; we cannot offer anywhere near this amount as our income is barely enough to cover our monthly expenses. I have $10,000 left in my 401k which I was planning on using to settle the judgements; for any other settlement attempt I will try to borrow money from family but this is limited. Our income, which is averaging between $35-45,000 per year, is dependent on my husband doing free-lance work for other architects; it is irregular and gives us little room to try to settle our debts or commit to some long term payment plan. In order to move beyond our present income limitations we need to be able to get a mortgage again, we've been turned down because of the judgements, delinquency, record of collections filed, time since delinquency and number of credit inquiries (from debt buyers, see below). My median credit score is 610, my husband's is 590. We have periodically attempted to resolve the negative issues on our credit report but usually give up in confusion and frustration over what the best use of our meager resources would be. Our credit report shows the charged off accounts being reported as current even though most of them date from 2008/9. Asset Acceptance, along with another debt buyer, keeps pulling our credit reports which lowers them further. We get letters from the other debt buyer, Mullooly, Jeffrey, Rooney & Flynn, for outstanding balances that don't show up on our credit report. My second question has to do with these old debts and the debt buyers; given that our end goal is to be able to qualify for a mortgage do we try to resolve them, ignore them and wait it out since most of them are 4-5 years old, or are we at the stage where our only recourse is the bankruptcy we've tried to avoid? - Michael Bovee:
17 Aug 2013 Rose - You will need to knock out any remaining collection accounts and get those updated as zero balance owed before you can strategically improve your credit. You could be 12 months from realizing the first part of your credit goals if you were to settle all debts today. Amex is a small enough balance. Who was the collector on the Chase debt? What is the last correspondence you received from Asset Acceptance? What if any other debts are out there? Assume you can settle the Chase debt for 5k. Assume a 30% (ish) settlement with Asset Acceptance for roughly 8k. Can you pull together 13k? How long would that take? It sounds like you could qualify for chapter 7 bankruptcy. But I would hate to see you have struggled so hard to avoid it, only to file for what amounts to 8 or 9 thousand. You would likely find you are locked out of underwriting standards for a minimum of 2 years after the bankruptcy. If you wait out the credit reporting you have another 2 to 3 years, but that is not likely the case with the judgments. When were the judgments recorded with the court? - Dave N:
14 Jun 2014 I lost my job in 2010. They were paying my salary plus 100% of my family medical insurance premium and HSA deductible. My new position pays $23K less plus my total medical out of pocket expenses per year are around $13K including medical premiums. My wife has had a variety of physical ailments, hospital admissions, and has lost jobs in the process. She is now out of unemployment. This combination spiked my credit card debt up. I have three cards-Chase, Wells Fargo, & Capital One. Total pushing 29K. The Capital One account account ($12K) has been charged off and sent to Nelson, Watson & Associates in Haverill, MA. I also have two Parent PLUS loans for college for two kids-total $26K. These two accounts are in deferral status but that is lender discretion only. I live from paycheck to paycheck with the primary mortagage consuming one of those two paychecks each month. I don't know where to start with this but my first concern is with the Capital One write-off. That is the only card that I was not able to pay on. Any advise? - Michael Bovee:
15 Jun 2014 Do you have an resources you can draw from to settle the Capital One account (even sell unused or seldom used items)? Are you able to set aside any money every month for cash savings? Are your payments to Chase and Wells Fargo current? Are you on any hardship repayment plans with those, or other accounts (interest rates reduced with lower monthly payments)? How much equity do you have in your home?