How Credit Card Debt Relief Programs Work

Ready purchase power is chief among the numerous benefits of using credit cards. A go-to option for people who desire instant gratification, credit cards can keep the good times rolling — until they stop.

That’s when in discriminant usage of credit cards renders detrimental results. This is a good time to learn how credit card debt relief programs work if you’ve found yourself in that situation. A word of caution though, makes an effort to exhaust possibilities, such as debt consolidation, credit counseling or debt management before you consider reaching out to debt relief companies.

What Are Debt Relief Programs?

To answer the question, how do credit card debt relief programs work, you need to know that this is a service offered by for-profit organizations whereby they negotiate with your creditors on your behalf at a fee. The end goal is to talk the creditors into accepting a lower amount of money than you owe them in exchange for a one-time payment in full of the agreed-upon amount.

These programs require you to stop paying your debt and instead make deposits into an escrow-like savings account they create for you. These monthly deposits go on until enough money is accumulated to make viable settlement offers. This approach has worked for hundreds of thousands of people over the years and it can work for you too. However, you should be aware of the following, as you’re deciding whether or not this approach is good for you.

There Is No Guarantee For Success

Creditors do not have to agree. In such cases, your debt settlement company will not play a part in offloading your financial baggage. Although you may not have to pay the company any money regarding your debt, you will have lost so much time.

Besides the time factor, you may be charged with late penalties due to the extended period you took to clear your loan. The ripple effect could be a bad record at the credit bureaus, in which case your best option might be filing for bankruptcy protection.

The Process Can Be Lengthy

Most of these programs require clients to make regular payments into an escrow-like savings account for up to 36 months or more as a prerequisite for debt settlement. Operating over such a lengthy time frame can be a source of trouble for many people. You must be careful to avoid incurring other debts in the interim.

You’ll Need a Steady Income

You need to know you’ll have a consistent source of income with which to make the required payments. Events such as job loss are a common reason for people to fall out of these programs. For this reason, it is critical to understand and assess your financial capabilities before signing up. Ensure you are in a position to commit to the monthly payment for the required time frame without straining yourself.

Understand The Ramifications

You will need to stop sending payments to your creditors while your settlement fund accrues. As a result, your credit record will contain missed payments, which are a source of damage to your credit.

Your debtors may file a lawsuit against you or resort to collection agencies. On the other hand, when debt settlement is your best play, you’re probably already having (or very close to having) all of those experiences.

When you understand how credit card debt relief programs work, you know debt settlement is a measure of last recourse. Still though, it can often be the best play available — and it does work.