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Although the latest inflation data shows signs of breaking free, the Federal Reserve has not adjusted interest rates for nearly a year. This means that many Americans who took on debt, such as because of inflation eating into their budgets or spending mistakes, continue to face high interest rates that make it difficult to straighten out the ship
In fact, credit card delinquencies have been rising in the US since the end of 2021, according to the New York Fed. In general, more than 10% of credit card balances are more than 90 days delinquent. Those with maxed-out credit cards are especially likely to face this problem: About one-third of those with a credit card utilization rate of 90% to 100% are delinquent.
But even in the face of what seems insurmountable credit card debtthere are likely some options available to you that can lead to some or all of your debt being written off, or you may find ways to improve manage debt payment.
Find out what the best credit card debt relief options are here.
Need to pay off your credit card debt? 3 options to consider
Some options to consider include the following:
Negotiate with credit card companies to get better terms
One option that doesn't necessarily reduce your debt, but can make payments easier, is to negotiate with yours credit card the company directly to see if you can work out an agreement, such as a payment plan, that can get you back on track.
If you want to avoid damaging your credit and you're confident you can pay off the debt over the long term, this is your best bet, says Gabe Kahn, chief credit officer at Arro. You can negotiate with the help of a credit counselor or on your own, he adds.
“This may be an opportunity to waive interest and fees, lower your minimum payment, and spread payments over a longer period to give you more time to pay. Although it may not reduce your debt burden as much as others options, it's also the most likely to maintain or even improve your credit score over the long term if you think you'll have the means to pay,” explains Kahn.
Learn more about how the right debt relief company can benefit you.
Reach a debt settlement
Beyond basic negotiations, such as a payment plan or waiving a penalty, you can work one out settlement of debts.
“You can do this by working with the lender yourself or by going through a third-party debt relief service,” says Kahn. “In these cases, it may be possible to write off some of your debt to reduce the principal you owe, but there are also downsides.”
“You often have to go into default first to negotiate a settlement, which can hurt your credit score. Also, not all third parties are effective or legitimate, and you can end up paying them money without getting results,” he explains. .
Still, this may be less extreme than bankruptcy.
“Both debt settlement and bankruptcy negatively affect your credit score, but debt settlement can provide a softer landing. That's because debt settlement doesn't completely absolve a debt, but instead provides a process to negotiate the payment of a percentage of the outstanding debt”. says Daniel Cohen, founding partner of Consumer Attorneys.
Bankruptcy file
Filing for bankruptcy is also an option to consider if you want to have it credit card debt deregistered
“Just like a business, anyone can file for bankruptcy if they have insolvency problems. Specifically, Chapter 7 bankruptcy can discharge most unsecured debts, while Chapter 13 bankruptcy creates a plan to 'repayment to pay off your debt over a longer term, say three years,' says Zhexu Edward Ai, Ph.D., assistant professor of finance, Wagner College.
Although bankruptcy can be the most effective way to settle debts, it can also have significant drawbacks.
Bankruptcy “is a much tougher option,” Cohen says. Chapter 7, which could allow you to discharge credit card debt, negatively affects your credit for typically 10 years. And Chapter 13 generally stays on your credit report for seven years.
“Bankruptcy indicates a fundamental inability to pay debts. Of course, sometimes it's still the best option for someone in dire financial straits, but it should be an option of last resort,” adds Cohen.
The bottom line
Trying to negotiate with credit card companies, reaching a debt settlement, or filing for bankruptcy can help resolve it. credit card debt, and each has its pros and cons. You must weigh factors such as the impact on your credit and your ability to repay the debt. Also, consider whether other solutions like debt consolidation, for example, taking out a personal loan to pay off credit card debt and then getting a lower rate loan debt relief you are looking for
