Three Options For Credit Card Debt Assistance

It doesn't always take a string of nasty phone calls from collection agencies for people to realize they need some good credit card debt assistance. Often, people realize they are in trouble (or about to get into trouble) when other events take shape, such as the loss of income, temporary or permanent layoff, and so on. Other symptoms might show up when people are unable to maintain their existing lifestyle or when a reduced lifestyle cannot be maintained.

When looking at different options when it comes to credit card debt assistance, debtors will invariably investigate the worst-case scenario, which would be bankruptcy. If they are able to stick a structured debt repayment program, they might come across and consider their debt settlement options and, lastly, they may even realize that they can manage the debt themselves through a debt management program.

We will take a quick look at these three options when it comes to credit card debt assistance: Chapter 7 bankruptcy, debt settlement options, and the debt management program.

Chapter 7 Bankruptcy

As possible the worst option, Chapter 7 bankruptcy offers the most depth when it comes to credit card debt assistance. Why? Because Chapter 7 Bankruptcy essentially wipes the debt clear off your slate. This means that if a debtor owes $30,000 in credit debt, they will have to repay nothing. Not a single penny. This becomes the biggest advantage to Chapter 7 Bankruptcy as far as credit card debt assistance is concerned because it allows the debtor to start fresh.

That fresh start, however, will not happen for a handful of years. To be precise, it can be anywhere from 6 to 10 years depending on when the Chapter 7 bankruptcy is discharged. During this time, debtors will suffer from a poor credit score and will encounter difficulties when it comes to obtaining new credit, including secured credit. This makes purchasing a home, replacing a vehicle (if financing is needed), as well as minor purchases that need financing (such as an engagement ring or appliances) nearly impossible to obtain.

Once debtors who need credit card debt assistance realize how financially debilitating Chapter 7 bankruptcy can be, they often steer clear and consider the next option -- debt settlement.

Debt Settlement

Unlike Chapter 7 bankruptcy, debt settlement allows a debtor to reduce his credit card debt levels by as much as 65%. Debt settlement can make debt repayment more affordable for an individual, but it also comes with damage to a credit score.

Debtors who choose this option can deal with their creditors on their own or can hire an agency to make the arrangements on their behalf. This comes at a cost, which is either paid up front or as part of the monthly settlement payments.

The downfall to debt settlement is that it damages the credit history and regular payments are required of the debtor. If the debtor misses a payment for any reason, the creditor can take action despite all of the work and effort that the debtor has already invested. Another downfall is that not all of the debt is eliminated, but since only a fraction is required to be repaid, debt settlement is often the option of choice for debtors seeking credit card debt assistance.

Debt Management Program

For the astute debtor, a debt management program may be the only viable option. Since a debt management program is normally a self-made debt repayment plan, it allows the debtor to repay credit debt without experiencing the damaging effects on the credit bureau and without having the deal with difficult credits. A successful debt management program will consist of a detailed budget to determine just how much extra money can be allocated toward debt, a repayment plan that incorporates monthly, accrued interest and a schedule that allows the debtor to monitor progress and stay focused.

The biggest downfall with a debt management program is that it becomes the debtor's responsibility to ensure they are able to maintain their payments and stay focused. In this regard, a debt management program does is not provide credit card debt assistance per se, but instead allows the debtor to take back control and steer their debt in the right direction.

In many cases, if debtors are able to negotiate a structured debt settlement with creditors and repay a reduced debt, they can avoid all of the disadvantages that come with the settlement by opting instead to create a debt management program. While there are no written off balances with a debt management program, the debtor does enjoy greater long-term benefits if they manage their debt themselves.

Regardless of which options works best for a debtor, they should make sure that they understand all credit card debt assistance options before they choose any single one of them. The consequences of choosing the wrong option can often be worse than any collection call or short-term sacrifice.