Things to Consider Before You Settle Your Credit Card Debt Settlement
Credit cards can often be an excellent financial aid when you really need some additional spending power. But the simple purchase today, pay later basis of credit cards often becomes an enormous burden when it comes time for repayment to your creditors. As a result, many individuals carry a seemingly unsecured balance on their credit card that steadily grows larger, until debt settlement might be the answer. If you are considering settling your credit card debts, there are several things that you should know. Here are some tips to get you started:
* Look at your total monthly payment history. Settling credit card debt is not an easy process if your payment history with your lenders remains poor. You may be asking your lenders for a new payment plan that is more affordable, or you may be facing foreclosure or the threat of it. In order to determine whether you qualify for a settlement program, review your financial situation to see what kind of payment history you have. If your payments are coming in slowly and you have difficulty making ends meet, chances are you will not be eligible for debt relief.
* Ask for lower interest rates. If you can’t afford your monthly payments anymore and you’re seriously considering settling credit card debt, don’t forget to ask your creditors for lower interest rates. Your creditors are more than willing to negotiate if you ask, so make sure you stay on top of all the activity within your credit bureau. The more activity you show on your accounts, the better the chance that your interest rates will drop.
* Avoid any late fees and other charges. Many people don’t consider the potential impact of settling credit card debt. Often, creditors will increase your monthly payments and even add on late fees, when they discover you’re unable to make your minimum payments. When you avoid adding too many fees to your budget, you will be able to keep more of your cash in your pocket and less toward debt. Many creditors also tack on late fees if you haven’t been able to pay them by the due date.
* Consider filing for bankruptcy. While this isn’t an option you should choose, some people find bankruptcy has a better effect on their finances than debt settlement does. If you file for Chapter Seven, the majority of your debts will be discharged, along with any tax liabilities tied to them. This will give you some relief from late fees and other collectors, while providing some short-term financial security. However, if you do decide to file for bankruptcy, remember that it will be a lengthy process and it’s very likely you’ll need to maintain your current lifestyle for quite some time.
* Take a look at your tax consequences. There are a number of common deductions you could be taking when you pay your taxes. Some are completely eliminated as a result of filing a lump sum, but others are only partially eliminated. Knowing your tax implications may help you make the decision whether or not you’re best served by settling credit card debt.
* Calculate how much money you could potentially save. If you owe more than half of your total taxable income, you can easily reach the point of paying off most of your debt. However, if you owe less than half of your taxable income, you may have to settle to at least keep a portion of your lender’s forgiven debt. In addition to being able to keep a portion of your lender’s forgiven debt, you may also be subject to tax penalties for the amount of money you repay. This is a benefit to anyone, but especially those who may benefit the most from settling credit card debt.
As you can see, there are many different factors that come into play when it comes time for you to decide whether or not you’re better off settling your credit cards. You and your financial advisor will want to consult with a certified public accountant and not rely solely on your personal finance advisor. When it comes to credit cards and your taxes, your bank account and your sanity are on the line. Make sure you do everything you can to make an informed decision about whether or not settling credit card debt settlement is a good option for you.