What entices people about credit cards is that they allow you to incur debt and keep your account open as long as you pay the minimum payment. People swipe and swipe and in no time, they find themselves buried deep in outstanding balances. Especially when medical and/or personal emergencies come up, it becomes challenging to stay on top of your finances.
It’s crucial to understand the options you have to get back on track. Paying off your credit card debt begins a journey of new financial circumstances. You must be mindful of how specific types of assistance will affect your credit history as well as what options are available to help you pay off your debt.
1. Debt Consolidation Loan
One way you can get out of credit card debt is to use a debt consolidation loan. What is debt consolidation? Debt consolidation is a form of debt refinancing that involves taking out a loan to pay off your other debts. Many people often find themselves in unexpected financial emergencies and they are unable to make timely credit card payments. That’s when debt consolidation can help. It can offer advantages such as:
- A lower interest rate that saves you money.
- Decreased monthly payments.
- A more generous repayment period that is divided into a series of installments.
- Having the option to consolidate your debts into a single loan.
- An improved credit score and history over time after making timely payments.
How to Protect Your Credit with Debt Consolidation
If you want to protect your credit score while taking the debt consolidation path, you must make careful decisions on how to consolidate your debt. Combining a debt consolidation loan with a debt management plan is a great way to make sure you stay on track while you’re getting out of credit card debt.
2. Debt Management Plan
If you don’t mind having your credit account frozen for some time, then enrolling in a Debt Management Plan (DMP) is a great option. You work directly with a counselor who negotiates your payments with your creditors to help make them manageable and affordable. With their assistance, you agree to close your credit accounts until you complete your DMP. This allows lenders to know that you cannot have any new lines of credit.
Though this freeze is noted on your credit history, enrolling in a DMP does not have a lasting negative effect on your credit score. In fact, it can very well improve your credit score and history. DMPs are designed to help you pay off your credit card debt with regular monthly payments within a three to five year period. Once you have completed your payments and complete your DMP, your credit will no longer be frozen.
Since these payments are automatically taken out of your bank account every month, they will have a positive impact on your credit. Not to mention, enrolling in DMP can help you look more appealing to the bureaus, as you are a consumer who is actively working on getting back on track.
3. Debt Settlement
Another way to get out of credit card debt is to consider a debt settlement option. Debt settlement or debt relief is when a third-party company helps you negotiate your debts with your debt collectors or creditors. Debt settlement can help you lower the amount of debt that you owe your creditors if you’re having trouble making payments. Negotiating a lower payment to your creditors may even help you avoid filing for bankruptcy if you’re having trouble affording your payments.
Often during debt settlement, you will begin making monthly deposits into a special savings account. This is so your debt settlement agency can negotiate a lump-sum payoff amount for you and gives you time to save money and reduce the number of years it takes to become debt-free. While your credit may take a bit of a dip during this time, it should rebound once you’ve settled your debt.
The pros of choosing debt settlement, especially if you’re having trouble making minimum payments, is that you will end up paying less to cover your debts than if you were to consolidate your loans or use a debt management plan.
Getting out of credit card debt is a gradual journey. It takes patience, organization, and optimism. So don’t get discouraged if you find that you are not seeing the results you want right away. By choosing the right debt solution, seeking proper guidance, and making timely payments, you’ll see positive outcomes to follow.
CreditAnswers Can Help
It’s important to feel safe and protected when you are trying to navigate your way out of credit card debt. CreditAnswers understands that unexpected circumstances occur, and can offer you a lending hand. Learn more and reach out to get a free debt assessment today. We can help you find the right tools and resources you need for your specific situation.