Credit Card Debt Relief – How Does It Work?

What’s Debt Settlement and How Does it Work?

Debt settlement is an option for borrowers who are in debt due to medical bills, personal loans, credit card bills, etc. Debt settlement is also referred to as debt relief and debt adjustment. When you go through the process of debt settlement, you make monthly payments into a special purpose savings account. Once a decent amount of money is saved up, a debt settlement company will help negotiate with your lenders to settle for less than what you owe. A debt settlement company will only receive payments from you as each of your in debt accounts are settled.

Hiring a debt settlement company is a good option for those in debt because they will get out of debt much quicker and their credit score will not suffer as much as if they filed for bankruptcy. Settling your credit card debt typically means that we negotiate an agreement to repay a portion of your balance, because you are facing financial hardships that prevent you from repaying the debt in full. This can help you better control your finances by reducing the debt you owe.

Credit card issuers regularly report your payment history to credit agencies each month. Along with each payment record, credit card issuers will update your account condition, which includes:

• “Open” (an open account with an open balance, in good standing);
• “Paid” (an account with a zero balance);
• “Settled” (an account that has been legally paid in full for less than the full balance).

When we work with your creditor to demonstrate hardship they may be willing to develop a settlement agreement. Settlement agreements allow you to pay less than the full balance against the card.

How To Avoid Future Credit Card Debt

Here are a few Credit card tips that you should follow in order to avoid future credit card debt.

Tip 1-  Spend within your means

The best way to avoid credit card debt is to pay your balance in full each month. In order to do this make sure you’re only spending what you can afford to pay back. Your credit card is a tool to build credit and pay for larger purchases in small increments, and you shouldn’t use it as a way to buy things you can’t afford to pay off within your billing cycle. Only putting purchases on your card that you’ll be able to pay off is the simplest way to prevent credit card debt.

Tip 2 –  Make monthly payments on time

Along with paying your balance in full, make sure you’re paying your balance on time. Many banks let you set up automatic payments, so money from your checking account can go directly to your card before it’s due every month. Making late payments can lead to fees that increase your existing balance, and make it harder to keep up with regular payments. Consider making multiple payments a month if it works with your budget.

Tip 3 – Do not overuse the card

Try to keep a low utilization ratio. Your utilization ratio is the percentage of credit currently in use. Let’s say you have a credit line of $5,000. If you have $2,500 in purchases on your card at a given time, you have a 50 percent utilization ratio. Using a high percentage of your available credit can make it harder and harder to pay off debt and can lower your credit score over time. You will also end up paying more interest in the long run. It’s a good idea to keep your utilization ratio below 30 percent of your available credit.

Tip 4 –  Understand your credit card terms

Knowing the specifics of your credit card agreement will help you avoid unexpected fees and keep track of your payments. Different credit cards will have different interest rates and potential fees. Before you use your card, read through the agreement to understand when you will be charged a fee, how interest will be applied to your account, and when that interest rate will increase. Choose a card that fits your spending habits and financial goals.

Tip 5 – Don’t open too many accounts in a short period of time

There are lots of credit cards with attractive terms and features but opening too many lines of credit at once gives you more places to accumulate debt. More credit cards to keep track of also makes it difficult to keep track of your spending and pay dates. Plus, opening too many accounts at once could negatively impact your credit score and you may be denied if you open multiple cards within a few months.

If you are currently experiencing credit card debt please contact us today for your free consultation at 1-877-850-3328.