Credit Card Debt Settlement: Is It For You?

Do you have at least $10,000 in credit card debt? If so you're like a lot of other families. Credit cards have become a way of life. Few people carry much cash any more or even a checkbook. Credit cards maybe a convenience or even a necessity but you can quickly get underwater.

If a financial disaster has struck you still have several options. Credit card debt settlement is for those people who have mostly unsecured debts. You, or a settlement service company, negotiate with each creditor to accept a lesser amount than that owed. Sometimes the creditor will accept a discount of as much of 50%. It's ideal to have the interest rate lowered or eliminated as well. You now have two options. The first is for you to make payments to each creditor until the agreed to amount is paid off. The second is to make payments to the settlement service company who then holds the amount in trust until the agreed to amount is reached. The settlement service company then pays the lender the negotiated amount.

A settlement program can take as long as 3 or 4 years to become completed. During that time you must make the payments to the settlement company to build up enough of a 'savings account' to pay off the negotiated loan amounts. At any point during that time the creditor can decide to pursue legal action against you to collect the full amount owed.

Credit card debt consolidation can be used with a settlement program. The settlement company negotiates with the credit card companies to accept a lesser payment. You then apply for a new loan. It's important to wait until the negotiations have been completed before you apply. If a creditor sees on your credit report, and they do look, that you've just gotten a new loan, they may take the attitude that if you can pay that loan back, you can pay them back. The proceeds of the consolidation loan would be used to make the payments.

Using a second mortgage on your home as a method of debt consolidation works if your credit scores, income, and mortgage payment history qualify you. However many people who are considering a settlement program have a deteriorating credit score and may have even missed a mortgage payment or two.

There are disadvantages with credit card debt settlement. There may be tax obligations because the forgiven debt could be considered income. Your credit score will be impacted because the unpaid balance of the debt will show up on your report. And creditors can pursue legal action until the moment the debt is paid off at the reduced agreed to amount.

Debt settlement isn't for everyone but it may be the life preserver you need.

About the author:
Find out more at credit card debt consolidation and credit card management. Dee Power is the author of several nonfiction books. Read her finance blog

More Finance information like Dee Power's at Credit-Voitures.com

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