Credit card debts can be notorious not only because they pile up quick, but also because you don’t realize the magnitude until you are hit hard. Credit card debts pile up quicker than you ever expect, thanks to high interest rates and of course, erratic payments by the debtors. So, how do you cope with a scenario where you are always catching up with credit card dues and failing at that even after trying your wits out? It’s time to have a look into credit card debt management programs.
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Working your way out of credit card debts can be a taxing and long process. Moreover, a wrong choice can further you down in debts. In case you don’t know how to go about clearing your credit card debts, seek the help of a credit counseling organization.
What is a credit counseling organization and how do they work?
Credit counseling organizations specialize in financial matters and debt management. These organizations work in tandem with the debtor and after having a close look at the debtor’s financial standing, formulate plans, and programs to eliminate debts. The counselor works out a budget in consultation with the debtor; who then keeps up with the sketched out budget and is thus more systematic in his/her approach to debts. If you are deep into credit card debts, the credit counselor may recommend a credit card debt management program.
What is credit card debt management program?
A credit card debt management program involves participation of the debtor, creditors and the credit counselors. Under the program, the counselor contacts each of your creditors and discusses your debt situation with them. The creditors, after extensive negotiations by the credit counselors, may waive off a few charges or lower the interest rates levied on your credit card debts.
Once such negotiations are done with each of the creditors and agreed upon mutually by the creditor and the debtor, and a payment plan is drawn out by the credit counselor. This payment plan forms the nucleus of a credit card debt management program. The debtor is required to pay as per the program. This payment is not directly routed to the creditors but is handed over to the credit counseling agency (or counselor). The counselor then disperses individual payments to the creditors as per the fixed ratio agreed in the credit card debt management program.
You should do a thorough background check of the credit counseling agency before enrolling for such credit card debt management programs. Also be very aware of the terms and conditions listed in the program.
What is a credit card debt consolidation program?
Under debt consolidation, a debtor merges multiple credit card debts and pays them off by taking up a single larger loan.
Since only a single payment goes out of your pocket towards the consolidated loan, it makes it much easier to plan and work out a budget. You may also end up saving on the interests you were shelling out (as the interest on a single loan may end up to be lesser than the cumulative interest on each of the unconsolidated loans).
Another way to consolidate credit card debts is to transfer your credit card balances on to a single low interest card. Sometimes, you may find companies offering zero percent interest on the new credit card. It is another interesting method to consolidate your credit card debts. By transferring your debts on to a single credit card, you save up a lot on the interest that you would have to pay on individual credit cards.
However, you should be fully aware of the terms and conditions as applicable to such balance transfers as there may be hidden charges or the rates offered by the company might be valid for only a short period of time.
What is a debt settlement plan?
Debt settlement plan is another option available to debtors to wipe off their credit card debts. Under such a program, debts are settled by negotiations between the debtors and their creditors. This program is generally deployed when a debtor is virtually incapable of making regular monthly payments to his/her creditor. Under such circumstances, a settlement is done wherein the creditor may waive off a few charges or lower the interest rates applicable so as to strike a deal with the debtor’s financial capabilities. The settled amount is then either cleared off by the debtor in one payment or through regular monthly installments or a combination of both.
One of the drawbacks of such a settlement is that it affects your credit scores adversely (but not as much as bankruptcy).
It’s best to choose a plan that is best suited to the situation you are in. All programs have their own merits and de-merits… so, choose wisely.