Need to erase your credit card debt? 3 options to consider

Although the latest inflation data shows signs of easing, the Federal Reserve has not moved on interest rates for almost a year. This means that many Americans who have fallen into debt, such as from inflation eating into their budgets or from spending mistakes, continue to face high interest rates that make it difficult to get back on track. .

Indeed, credit card delinquencies have been increasing in the United States since the end of 2021, according to the New York Fed. Overall, more than 10% of credit card balances are more than 90 days past due. Those with maxed out credit cards are especially likely to face this problem: About a third of those with credit card utilization between 90 and 100 percent are delinquent.

But even in the face of what seems insurmountable credit card debtThere are likely options available to you that can result in some or all of your debt being forgiven, or you might find ways to better manage debt payments.

Find out what your best credit card debt relief options are here.

Need to erase your credit card debt? 3 options to consider

Some options to consider are:

Negotiate with credit card companies to get better terms

An option that does not necessarily reduce your debt, but can make repayments easier, is to negotiate with your credit card directly to the company to see if you can work out an arrangement, such as a payment plan, that can get you back on track.

If you want to avoid damaging your credit and are confident you can repay your debts over the long term, this is your best option, says Gabe Kahn, chief credit officer at Arro. You could 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 of time to give you more time to repay. While it may not reduce your debt as much as other options, it is also the most likely to maintain, or even improve, your credit score in the long term if you think you can afford it. repay,” says Kahn.

Learn more about how a good debt relief company could benefit you.

Reaching a Debt Settlement

Beyond basic negotiations like a payment plan or waiving a penalty, you could develop a more structured agreement. debt settlement.

“You can do this either by working with the lender yourself or through a third-party debt relief service,” says Kahn. “In these cases, it may be possible to cancel some of your debt to reduce the capital you owe, but this also has disadvantages.”

“You often have to first become delinquent on your debt in order to negotiate a settlement, which can hurt your credit score. Additionally, not all third parties are effective or legitimate and you might end up paying them money without getting results,” he explains. .

Still, it may be less extreme than bankruptcy.

“Debt settlement and bankruptcy both have a negative impact on your credit score, but debt settlement can provide a soft landing. Indeed, debt settlement does not completely absolve a debt, it provides a process of negotiating the payment of a percentage of the outstanding debt.” says Daniel Cohen, founding partner of Consumer Attorneys.

File for bankruptcy

Filing for bankruptcy is also an option to consider if you wish to have credit card debt removed.
“Just like a business, anyone can file for bankruptcy if they have insolvency issues. Specifically, Chapter 7 bankruptcy can discharge most unsecured debts, while a Chapter 13 bankruptcy creates a repayment plan to pay off your debt over a longer term – for example, three years,” says Zhexu Edward Ai, Ph.D., assistant professor of finance at Wagner College.

Although bankruptcy may be the most effective way to clear debts, it can also have significant disadvantages.

Bankruptcy “is a much harsher option,” Cohen says. Chapter 7, which could allow you to cancel your credit card debts, typically negatively affects your credit for 10 years. And Chapter 13 typically stays on your credit report for seven years.

“Bankruptcy indicates a fundamental inability to repay debts. Of course, sometimes it remains the best option for someone in a dire financial situation, but it should be an option of last resort,” adds Cohen.

The essential

Trying to negotiate with credit card companies, reaching a debt settlement, or filing for bankruptcy can all help resolve the problem. credit card debt, and they each have their advantages and disadvantages. You need to weigh factors such as the impact on your credit and your ability to repay the debt. Also consider whether other solutions, such as debt consolidation – for example, taking out a personal loan to pay off credit card debt and then taking out a lower rate loan – would provide the debt relief you look for.