Signs indicating potential suitability for credit card debt settlement:
In today's economic climate, many households are finding it increasingly difficult to keep up with their credit card payments. For those struggling to make ends meet, debt settlement could be a viable solution to escape a seemingly endless debt cycle.
Angelica Leicht, the Senior Editor for the Managing Your Money section at ourNews.com, provides valuable insights into this financial strategy. With a wealth of experience from editing roles at The Simple Dollar, Interest, HousingWire, and other financial publications, Leicht writes and edits articles on personal finance topics, offering practical advice for readers navigating their financial lives.
Debt settlement is a strategy that aims to negotiate with creditors to pay less than the full balance owed. It's important to note, however, that debt settlement is not suitable for everyone.
Typically, debt settlement is considered by cardholders who have a credit card balance of at least $5,000 to $10,000 or more. Signs that credit card debt settlement might be the right choice for a borrower include being more than 90 days past due on payments, struggling for an extended period to make debt payments, and demonstrating a financial hardship that prevents the borrower from making full payments.
Another key indicator is the inability to pay the full debt but being able to offer a lump sum amount (often 40% to 60% of the total balance) to creditors. This shows readiness for settlement negotiations, which involve actively participating in the process and being willing to negotiate terms with creditors to agree on a reduced lump sum.
If other options like credit counseling, debt management plans, or debt consolidation are not feasible or have failed, debt settlement might become the last resort. It's advisable to speak with a debt relief expert to understand specific options and possible outcomes before making any decisions regarding debt settlement.
Debt settlement can provide the fresh start needed to rebuild financial life on more sustainable terms. However, it's important to remember that debt settlement can impact credit scores temporarily. While it may offer a faster resolution option compared to traditional credit counseling timelines that can stretch five to seven years or more, it's crucial to consider the potential credit impact and associated fees.
Raiding retirement accounts for credit card debt is not advisable as it triggers penalties, results in extra taxes, permanently damages long-term financial security, and foregoes decades of compound growth. Inflation has cooled but not reversed, and the squeeze on household budgets doesn't seem to be easing.
In conclusion, credit card debt settlement is most appropriate when a borrower faces substantial, delinquent debt, ongoing financial hardship, and the ability to make a reduced lump sum offer to creditors, while recognising that fees and credit impact are factors to consider. For those struggling with credit card debt, seeking professional advice and exploring all available options can help provide a pathway to financial stability.
- Angelica Leicht, a seasoned finance editor, offers practical advice on debt settlement as a possible solution for households struggling with credit card payments.
- Debt settlement, a strategy aimed at negotiating with creditors for reduced balances, may be suitable for those who have significant credit card debt (minimum $5,000 to $10,000), are past due on payments, and demonstrate financial hardship preventing full payments.
- If traditional debt management plans or credit counseling are not feasible or have failed, debt settlement might be an option, but it's crucial to consult with a debt relief expert before making any decisions, given the potential credit impact and associated fees.
