You may have initially set up a credit card to use only in emergencies or to take advantage of rewards. You had the best intentions to pay off the balance every month. However, life does not always operate as planned and as the years go by you may find your credit card debt has become more than you can handle. What options do you have if you are struggling under extreme debt and just want a fresh start?
Talk to your creditor
One option is to discuss your situation with your credit card company. Usually there is a number on your credit card statement you can call. Stay calm when talking to your creditor as you explain your situation. It may take more than one phone call. You may be able to negotiate a modification to your payment plan that results in lower monthly bills you can afford.
Talk to a credit counselor
There are numerous credit counseling organizations that help people who need assistance managing their debts. They can advise on budgeting. Many educational materials and workshops are available at no cost to you, but make sure to do your due diligence as some do charge fees for their services. You may, with their assistance, be able to rework your budget in a way that allows you to pay back your credit card debt.
Consider filing for bankruptcy
Bankruptcy is a viable way to put unmanageable debt behind you. In a Chapter 7 bankruptcy your non-exempt assets will be liquidated, and the proceeds used to pay back your creditors. After that, many of your debts will be discharged allowing you to move forward on a clean slate. In a Chapter 13 bankruptcy you will enter into a three- to five-year court approved repayment plan that allows you to pay down your debts in a way that you can manage. After the repayment period is up many of your remaining debts will be discharged. This also allows you to move forward on fresh financial footing.
Beware of debt settlement companies
One note: be careful if you are considering working with a debt settlement company. These companies state they will settle your debts by negotiating with your creditors. The settlement is paid in a lump sum, and that sum is funded by monthly payments made by you into an escrow-like account. This is risky. For example, the company may ask you to stop paying on your debts while using their services, which could put you into further debt, damaging your credit score and possibly leading to a lawsuit brought against you by your creditor. In addition, it can be hard to make the required monthly payments meaning your debt is never settled and you are even further behind on your debts. Finally, some “debt settlement” programs are outright scams that will take your money but never negotiate a settlement.