DebtQuote

If you're feeling overwhelmed by credit card debt, pursuing debt relief may be a good idea. Credit card debt relief means paying less than what you owe to have your balance zeroed out. There are many options to obtain credit card relief if your debt becomes unfavorable. Keep in mind that credit card relief has its consequences.

In this article you'll learn more about credit card debt relief, credit counseling and bankruptcy options, applicable interest rates, and how your credit score is affected.

How To Get Credit Card Debt Relief

The credit card debt relief option that's right for you will depend on your credit card debt, how many payments you have missed, and who owns your debt.

If you have debts you can't pay, the first step is to get organized. Take a moment to sort out the following:

1
Whom do you owe? If you're struggling to pay off debt, it's likely you owe money to more than one creditor. You may have debt with different credit card companies, lenders, or merchants. And it's even more complicated if these creditors have passed the job of collecting your debt to a collection agency or a debt buyer. The following part of this article will explain the differences in dealing with the different types of debt collectors. Begin by making a list of every organization that´s after you for money.
2
Do you dispute these bills? Separate those debts you agree you owe with the ones you dispute. You can dispute a bill due to a mistake, overcharging, or nonperformance of service. You should gather documentation to prove your point.
3
How much do you owe? Make a list of every organization trying to collect money from you, and then make a total.
4
What is the minimum amount of monthly payment you owe? Add up all the minimum payments on credit cards and monthly installment debt payments that you owe to see how much you'd have to pay each month to keep up with your debt. If some charges are long overdue, it's probable that some of your creditors may be seeking a large lump sum upfront to cover missed payments, interest, and penalties.
5
How much can you afford to pay? Review your budget to find any unnecessary expenses you could cut out. Determine how much you could pay each month toward your debt. What's important here is to figure out the gap between the amount you're being asked to pay now and what you can actually afford. Once you're organized, you can start working on closing that gap.

Seeking Debt Relief Depending on Whom You're Dealing With

Debt collectors are well aware that they can't get something out of you when you've got nothing. Their goal is to get as much of what you owe as possible, even if it's less than the total amount. They're looking to get partial payment, rather than nothing at all.

This means that there's room to negotiate, although debt collectors can prove to be tough adversaries. They have already heard every excuse in the book and are a tough nut to crack.

Your approach to this negotiation will change depending on the type of organization you're dealing with, whether it is:

The original creditor
A collection agency
A debt buyer

Each type of debt collector operates in its unique way and is motivated differently, which will help guide how you deal with them.

The next part of this article will explain more about these different types of debt collectors.

Seeking Credit Card Debt Relief From Your Credit Card Company

Contrary to some collection agencies that pursue credit card debt on behalf of other companies, a company attempting to collect its own debt is not bound by the Fair Debt Collection Practices Act (FDCPA). The law restricts how a debt collector can approach a consumer, but those restrictions don't apply when a credit card company attempts to collect its own debt.

Despite not being restricted by the FDCPA, credit card companies are motivated to work with you to find a reasonable solution.

First, there is a chance of reaching a compromise with your credit card company. Since they havent had to go to the expense of hiring a debt collection agency yet, they may be willing to work with you.

Second, these companies are in the business of maintaining ongoing relationships with customers, not collecting past credit card debts. So they are likely to be open to finding a way to handle your credit card debt that gets you back to being a profitable customer for them.

In this case, the most effective approach is to keep those motivations in mind. If you offer to extend repayment, the credit card company might be willing to hammer out a deal. Because their goal is to get paid eventually and keep you as a customer.

Imagine you can demonstrate to the credit card company that you are unable to pay the full amount you owe. In that case, they may be willing to negotiate a settlement for a lesser amount, since it might be better than dragging out the process for months or years. From the creditors point of view, sterling for less upfront can avoid the expense or hiring a collection agency and the risk of getting even less if you go to bankruptcy.

If you demonstrate genuine financial hardship, you are more likely to make a case for settlement. The company would be suspicious of how genuine your difficulty is if you've been spending on vacations or luxury items.

Negotiating Credit Card Debt Relief With A Collection Agency

In cases where payments are overdue by six months or more, the credit card company may assign the case to a collection agency. Collection agencies are companies that specialize in recovering delinquent debts, usually on behalf of the original creditor.

Collection agencies are paid with a percentage of the debt that they collect from you, so expect them to know how to drive a hard bargain. This is where consumer protection law –The FDCPA– springs into action.

The FDCPA provides consumers with certain rights and restricts the practices that debt collectors that are working on behalf of others may use, including:

It requires that the debt collector provide written validation of the credit card debt. This includes the amount of the credit card debt and details of who is owed.
It requires debt collectors to provide written validation of the credit card debt, including the amount of the credit card debt and details of who is owed.
It gives the consumer thirty days to dispute any or all debts listed, once written validation is provided. Any such dispute should be made in writing.
It requires the collector to provide written proof of the credit card debt or a copy of any court judgment affirming the obligation, if a written dispute is received by the consumer. Until this documentation is provided, all collection activities must cease.
It restricts debt collectors from contacting a consumer outside of the hours of 8 a.m. and 9 p.m. in the customer's time zone.
It gives employers the right to prohibit debt collectors from contacting their employees at their place of business or making collection calls at work.
It requires the collector to only communicate about the credit card debt with the consumer, the consumer´s representative, the creditor and their representatives, and consumer reporting agencies where permitted by law.
It restricts debt collectors from using abusive or threatening language with a consumer.

Knowing the law can help you establish ground rules that allow you to handle debt collectors in an efficient manner.

Since the collection agency gets paid depending on how much off the credit card they collect, you should focus on proving to them the limits of what you're able to pay. Once they know that parameter, they'd rather collect a partial amount and get paid than continue to pursue you and end up getting nothing.

Keep in mind to not make any partial payments until a complete settlement has been agreed to in writing.

Negotiating Credit Card Debt Relief With A Debt Buyer

When a credit card debt is long overdue and collection efforts have failed, a credit card company may consider selling it to a debt buyer.

The debt is often sold for a greatly reduced amount since the possibility of collecting is so remote. But that does not change the amount you owe, what changes is that you now owe the money to the debt buyer.

The buyer of your credit card debt would be considered an original creditor instead of a collection agency working on behalf of a creditor. Once a buyer owns your debt, they are often not restricted by the FDCPA (unless their primary business is debt collection rather than investing in bad credit card debts)

When dealing with debt buyers, the important thing to keep in mind is that they may have purchased your credit card debt for pennies on the dollar. They may be making a profit with what you pay them, so there is room to negotiate.

But debt buyers are just as tough as debt collectors, they've seen it all before. They will only reduce the amount you owe them if you convince them you have nothing else to give.

“Government Program” Credit Card Debt Relief

You may be wondering about government programs for credit card relief, but the truth is that they don't exist.

There are various consumer protection laws, like the FDCPA, but there is no program in which to enroll. If someone approaches you on behalf of a government credit card relief program, it's most certainly a scam.

Statutes Of Limitations For Credit Card Debt

Does credit card debt ever get forgiven if enough time passes?

Each state has a statute of limitations that limits the time during which a creditor can use the legal system to collect the debt, including how much time someone has to sue you for a bad credit card debt.

So, in theory, another option is trying to run out the clock by waiting for the statute of limitations to expire. You may refuse to pay but debt collectors are well aware of the debt´s origination and how much time they have to sue, they know the game better than you.

You shouldn't try to use the statute of limitations as a negotiation tactic. If you threaten to hold out until it expires unless the debt collector gives you the deal you want, you could prompt them to initiate legal action to beat the time limit.

How Debt Relief Companies Work

All of the above can be rather complicated to understand, especially if you are dealing with multiple debt collectors after you.

This is where a debt relief company can be helpful. A debt relief company can give you a hand in organizing your debts and figuring out what you can afford to pay. These companies use their experience and knowledge to negotiate with your debt collectors and settle a deal on your behalf.

You get the company to organize your debts and negotiate settlements and in exchange the company charges you based on a percentage of your credit card debt. They'll negotiate a debt reduction but it will be counteracted by what you have to pay for this service.

Getting Credit Counseling Help

You could pursue a debt management plan (DMP) from a non profit credit counseling agency to consolidate several credit card obligations into one payment. This would reduce your interest rates and usually set up a three to five year áyback schedule. A DMP can prove to be a worthy option if you struggle to repay your credit card bills monthly. Since you completely repay your debts (unlike bankruptcy or debt relief), your credit score would not be as affected.

By getting help from a third party, involving a non profit credit counseling agency for example, you'll gain access to their professionals. They are typically certified and experienced in consumer credit, financial and debt counseling and budgeting. Their counselors discuss your financial situation with you, review your finances and help you develop a personalized plan to solve your money problems.

The credit counseling expert can advise you on your money and debts, help you with a budget, develop debt management plans, offer financial education opportunities, and aid you in getting a copy of your credit scores and credit reports.

The Price of Credit Card Relief

Whether you handle negotiations for credit card debt relief by yourself or engage a debt relief company, there are still costs involved.

Your late payments will show up on your credit report while the process continues, damaging your credit score. And once a settlement is reached, details of settled accounts stay on credit reports for up to seven years.

In addition, the amount forgiven debt is considered taxable, unless you can prove that you are insolvent.

Bankruptcy

After you have exhausted all your other options (you can't reach an agreement with your creditors and can't afford to pay the debt), you should consider bankruptcy.

Bankruptcy is a legal process by which credit card debts get settled once and for all. A court will consider all your credit card debts and resources and decide how much you can afford to pay each creditor.

The court will have control over how much of your income and property you will have to put towards your credit card debt. And you may also have to pay upfront legal and filing fees in the process.

In addition, according to the US Consumer Financial Protection Bureau, bankruptcy will stay on your credit report for ten years. Lenders will look at your credit profile when you apply for credit, so this will severely restrict your ability to get credit and make it more expensive when you can get it.

Taxes on Credit Card Debt Relief

One of the main differences between bankruptcy and the other options for credit card debt relief is tax treatment.

According to the Internal Revenue Service rules, debts canceled in a bankruptcy proceeding or other legal determination of insolvency are not taxable. Filing for bankruptcy is a way of proving that you are insolvent. Contrary to that, if a creditor relieves you from your credit card debt, the amount forgiven is treated as ordinary income for tax purposes. You'll need to prove that you are insolvent to avoid taxation on forgiven amounts.

The IRS rules that, "A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven credit card debt may be excluded as income under the 'insolvency' exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent."

If your credit card debts exceed the value of everything you own, you can be considered insolvent.

How Can Credit Card Debt Relief Work for You?

If you are being chased by debt collectors, you do have options. You can attempt to negotiate a debt settlement on your own or have a debt relief company do it for you, and, as a last resort, file for bankruptcy.

It's better to try to get organized and have a strategy than struggle to respond to each collection attempt individually.Youll get better results if you take control of the process, even if it means paying for professional credit card debt relief.