It can sometimes become really difficult to manage credit card debt because it can quickly spiral out of control especially due to the accumulating balance and high interest rates. On top of it all, if you are already going through a financial hardship, even making minimum payments can feel impossible. Fortunately, if you want to regain financial stability and become debt free, there are multiple credit card debt relief options available. Each one of them come with their own advantages, disadvantages and eligibility criterias. 

In order to make the right decision that aligns with your financial picture, it’s important to understand each option in detail. Today we are going to break down all of the commonly used credit card debt relief strategies including Debt Management Plan, Debt Settlement, Debt Consolidation and Bankruptcy. For a complete overview of solutions, explore all these credit card debt relief options. 

Debt Management Plans (DMP) –  How Does It Work?

A Debt Management Plan is a restructured repayment plan that’s arranged through a non-profit credit counseling agency. What happens here is that you have to make a single monthly payment to the agency and they will then distribute your funds to your creditors on your behalf. These agencies often help by negotiating with your creditors to reduce the interest or waive off particular debt-related fees. 

Here’s how it works; 

• You contact an accredited non-profit credit counseling agency 
• The agency will then contact your creditor and negotiate to reduce the interest or at least waive off the penalties
• You start making one payment every month to the agency and they then distribute it to your creditors accordingly 
• The plans usually last between 3 to 5 years. 

Pros And Cons Of DMP 

Pros	Cons
Helps simplify your payments as you only have to make a single payment every month	Once enrolled, your accounts will be closed which can affect your credit score
Reduced interest rates or waived off penalties	You have to make consistent payment over the course of several years until your debt is clear
No over limit charges or late fee penalties	Not all creditors will accept your DMP offer

Ideal For: It’s best suitable for those who can afford to make consistent payments every month but require a lower interest rate or a restructured payment plan.

Debt Consolidation – How Does It Work?

When facing unmanageable balances, understanding the various credit card debt relief programs is crucial. One of the most common ones is debt consolidation. Debt consolidation involves rolling all your high interest debts into a new single loan. Not only does it help simplify your debt payments, in fact, it can save you a lot on the interest too. You’ll only have to make one repayment every month instead of many. 

Types Of Consolidation Loans

• Personal Loans: You take out a fixed term loan from a credit union, a bank or an online lender to pay off all your existing debts. 
• Balance Transfer Credit Cards: You move all your existing balances to a new credit card that comes with a 0% APR introductory period that typically lasts between 6 to 18 months. 

Pros And Cons Of Debt Consolidation 

Pros	Cons
Simplifies your financial obligations with a single monthly payment	To get the best loan terms and rates, you need to have an excellent credit score
If you qualify for a lower rate, you’ll be able to save a lot on the interest	If you don’t manage your old credit lines responsibly, you can end up deeper into debt
Fixed timeline to payoff the loan	Balance transfer fees involved
Can help improve credit score over time by keeping the credit utilization ratio low	Loan origination fee can affect your savings.

Ideal For: If you have a fair to excellent credit score and can manage to make your payments on time then it’s best suitable for you. With a good credit score, you can qualify for lower interest rates which can help you save more in the long run. 

Debt Settlement – How Does It Work?

Debt settlement is all about negotiating with your creditor or involving a third party settlement company to negotiate with your creditor and reduce the total amount of debt. What happens is that you pay a lump sum that is less than the full amount and in return your creditor forgives the rest of the outstanding debt. Creditors often agree to settle for less just so that they can recover at least some payment from the borrower. 

Here’s how it works; 

• You stop making payments to your creditors directly and start depositing that money into a savings account 
• Once you have saved enough, the settlement company negotiates with your creditor on your behalf for a reduced payment (less than 40% to 60% of the original amount). 
• After settlement, your account will be reported as “settled” or “paid less than the full amount” on your credit report. 

Pros And Cons Of Debt Settlement

Pros	Cons
Can significantly reduce the total amount of debt you owe	Your credit score will take a serious dip and it’ll damage your credit report for several years
Your debts might get resolved faster (in between 2 to 4 years)	Creditors can take legal action against you or pursue collections before the settlement
Offers big time relief to those struggling to make minimum payments every month	Settlement companies will charge a fee that can be between 15% to 25% of the total enrolled debt
	The IRS will tax you if your creditor forgives more than $600 of your debt

Ideal For: If you are struggling financially and can’t afford to pay off your debt in full then debt settlement really is the best solution especially if you want to avoid bankruptcy. 

Bankruptcy – How Does It Work?

Bankruptcy is a legal process and it involves restructuring or completely eliminating debt when it gets overwhelming and unmanageable. It’s all done under the supervision of the federal court. It’s best suitable for those who need a fresh and new financial start. However, it does have a severe impact on your credit score. 

Types Of Bankruptcy

• Chapter 7 Bankruptcy: Most of your unsecured debts including credit cards and personal loans are completely wiped off. However, some of your assets will be sold to repay your creditors. The process takes around 3 to 6 months to complete. 
• Chapter 13 Bankruptcy: The court provides a restructured payment plan for you that lasts between 3 to 5 years. After this time, the remaining debt will be discharged. If you stay consistent with your payments, you won’t lose your assets. 

Pros And Cons Of Bankruptcy

Pros	Cons
A legal process to eliminate your debt	It’ll severely damage your credit report and will remain there for 7 to 10 years
No wage garnishments, collection calls or foreclosures	Debts like student loans and child support etc can’t be discharged
You can get a fresh financial start after discharge	You might have to give up some of your assets especially in case of Chapter 7 bankruptcy
	Significant legal and filing fees included

Ideal For: If you are dealing with an overwhelming amount of debt and it’s impossible to even make minimum monthly payments then bankruptcy is the right option for you. 

Still not sure which program fits your situation the best? Start with our self-assessment guide to find the right credit card debt relief option.

Which Form Of Debt Relief Is More Suitable For You?

If you are looking for some hope then it’s important that you first learn about tailored credit card debt relief strategies. Most importantly, the right option depends all on your current financial situation, your credit profile and your long term financial goals. 

Situation	Recommended Solution
You can afford to make monthly payments but just need a lower interest rate or a restructured plan	Debt Management Plan (DMP)
You can easily manage the balance and have a good credit score	Debt Consolidation
Unable to make even minimum monthly payments and are falling behind	Debt Settlement
No realistic ability to pay off your loan, need a fresh financial start	Bankruptcy

Final Verdit 

It’s important to understand that credit card debt relief isn’t a one size fits all solution. In fact, it’s different for everyone and every financial situation. You first need to evaluate your financial picture and then make a decision accordingly. Also, other than your ability to manage the payments, you should also consider the impact of each strategy on your credit score learn how credit card debt relief impacts your credit score.

Whether you opt for a DMP, Debt consolidation, Settlement or Bankruptcy, you must carefully approach and use each one of the options with realistic expectations. If you want to achieve your long term financial goals and want to become debt-free then it’s important to practice discipline, choose the right path and use guidance wherever required. 

FAQs

Need guidance on which credit card debt relief option is best suitable for your situation? Try Mountains Debt Relief because with the right expertise and experience we can help you regain your financial control without any hassle!