Alternatives to Debt Settlement: Smart Ways to Manage Credit Card Debt

If you have mounting credit cards bills that you can't seem to pay down, you may have considered debt settlement. A debt settlement company negotiates a payment with the creditors, and you pay the settler directly, who in return makes your payments to the creditor. Debt settlement will have a serious impact on your credit that will linger for up to seven years. It also can be an expensive option since the debt settlement company will take its cut. Before committing to a settlement company, explore other alternatives for repaying your debt.

1- Make a Plan and Stick With it

Mounting credit card debt can be overwhelming. You may feel you aren't making any progress with repaying and that it will never go away. You need to be realistic about how much you owe, and how much you are paying. Perhaps you are not contributing enough and you need to cut back in other areas of your life in order to free up some cash. By creating a budget and sticking to it, you may find yourself with more cash than you knew you had. If there is little wiggle room in your already tight budget, getting a second part time job and strictly applying those earnings to your debt could really help to chip away at the mound of bills.

2- Credit Counseling Service

A credit counseling service is a a non profit organization that educates you on how to repay your debt. They usually do not negotiate with your lenders, but they do help you understand how much to pay each month to each debt in order to pay it off quickly. They also help with budgeting and spending habits. These services do not disrupt your credit and sometimes can be obtained free of charge.

3- Negotiate with Your Creditors

Most credit card companies have a hardship program for their borrowers. You can call the creditor directly and try to negotiate better terms. You make be able to reduce your monthly payment or even your interest rate. By working directly with the creditor as opposed to a debt settlement agency you are not hurting your credit.

4-Filing for Bankruptcy

Bankruptcy is an alternative to debt settlement. It does have its own set of drawbacks, but in some situations may be helpful. Chapter seven bankruptcy discharges the debt completely. Anything that cannot be repaid using your assets is discharged. Chapter thirteen bankruptcy is where the creditor holds the debt and the borrower repays under a payment plan. In this option, you will usually repay a lower amount than what you would repay under debt settlement. This will have a negative impact on your credit. It will, however, greatly reduce the amount of debt you owe. The amount of repayment is based on your income.