Finding the Best Credit Card Debt Relief Program

Being in debt is not an easy burden to live with. From the neverending phone calls, emails, and texts to having to watch your credit score slowly drop month after month, being stuck in debt is both stressful and frustrating.

Thankfully, though, there’s always a way to get out of debt. One of the best ways to get on track to get out of debt, improve your credit, and stop the calls is to work with a professional debt relief service. These programs are designed to help you settle your debts and create a budget that will allow you to pay them off as quickly as possible to avoid bankruptcy and other negative hits on your personal credit.

Below, we’re going to give you a comprehensive breakdown of all of the most common debt relief programs and options that you’ll be able to choose from. Let’s take a look!

Credit Card Debt Relief: Starting Off

A credit card debt relief service is where you should turn when do-it-yourself repayment options aren’t working or your lenders aren’t accepting your offers. These programs typically involve either a debt management program or using a debt settlement program to help you repay your loan as quickly as possible.

  • The program you use typically depends on the following factors:
  • The current status of debts.
  • How much you make (income).
  • The amount you owe.
  • Your credit score and credit history.

Debt relief programs do not require you to seek new financing. So this means that anybody can enroll, regardless of how damaged your credit score is.

Most Popular Credit Card Debt Relief Programs

When you first make the decision to start with a credit card debt relief program, you’ll typically be able to choose between two major options:

  • A Debt Management Program (DMP)
  • A Debt Settlement Program (DSP)

Although the two may sound similar, each method has its own prospective benefits and drawbacks to consider. Below, we’ll explain each method and give you the pros and cons that you should be aware of before making your final decision.

Debt Management Programs (DMP)

DMP programs are somewhat similar to debt consolidation programs. However, unlike consolidation programs, they don’t require you to apply for a new line of credit. Instead, you’ll make monthly payments to your credit counseling agency, and they will evenly disperse the funds among your credit card lenders so that you can slowly pay everything off.

Here are the basics of how it works:

  1. Your debt counselor will calculate your living costs, income, and debt to figure out a good debt management budget.
  2. Next, the counselors will contact your creditors to eliminate or reduce interest penalties, reduce the total amount owed, and stop negative credit reports.
  3. Once the program has started, simply make your monthly payment to the counseling agency, and they’ll handle all of the payments!

Unlike consolidation programs, you’ll still owe your creditors. However, you’ll be on track to pay them off in a timely and efficient manner.

Debt Settlement Programs (DSP)

Debt settlement programs are typically reserved for those who can’t afford to pay all of their debt back. Essentially, your settlement agency will work with your creditors to come up with a settlement agreement that ensures that you only have to pay a certain percentage of your loan back. The creditor will then discharge the remaining balance and close your account.

The advantage of a debt settlement program is that you won’t have to pay back everything that you owe. The disadvantage of a DSP is that it will negatively affect your credit score as the creditors will give you a negative final report with the unpaid amount and the account will be listed as “settled” on your credit (which is derogatory).

Typically, your settlement agency will advise you to stop making payments to creditors while they work out an arrangement. Then, they’ll get you set up with a budget to save enough money to pay the settled amount.

Debt Management Vs. Debt Settlement Programs: Side-By-Side

Here’s a side-by-side comparison outlining the differences between a debt management program and a debt settlement program.

Debt Management Program (DMP)Debt Settlement Program (DSP)
You’ll pay everything you owe.Only pay a percentage of what you owe.
Reduces interest and stops penalties.Usually eliminates interest and penalties.
Saves your credit and may even help improve your creditSettlements are usually listed as derogatory on your credit history, which can lower your credit score.
Best to use when you still owe your direct lenders.Best choice when debts have gone into collection.
Typically takes 30 to 60 payments.Typically takes 1 or 2 years.
Can reduce total payments by 30% or more.Can reduce payments by up to 50%.
Counseling fees average $35-$50 per month.Fees may be between 10% and 15% of the total debt owed.

DIY Debt Relief

If you’re new to seeking debt relief, then you might have considered just taking care of it yourself. While it’s certainly possible, it usually requires you to negotiate directly with creditors (which can take hours on the phone) or to apply for new financing/credit to consolidate debts (which is hard if you have poor credit).

However, if you’re confident in your abilities to get out of debt through your own means, then it’s never a bad idea to give it a try. If you’re unable to accomplish it on your own, a debt relief agency can always step in and help. Here are some of the most popular DIY debt relief options you’ll be able to choose from.

Option #1- Workout An Arrangement

As long as your account hasn’t been passed into collections, then this is often one of the easiest methods to repay your credit card debt. Basically, you’ll contact your creditor directly and tell them that you would like to work out a repayment plan. If they accept, they’ll usually freeze your account and stop future interest penalties from accruing. Then, you can make arrangements for a monthly payment you can afford.

Option #2- Make A Settlement Offer

If you’re in over your head or your account has been passed along to collections, then it may be a good idea to seek a settlement offer. You’ll need to write a letter to your creditor (or the collection agency that the debt has been passed to) with a settlement offer. You may need to follow up with a few phone calls to get their attention.

They might reject your request at first. However, you can send another counter offer offering to pay slightly more in hopes of acceptance. If your settlement is accepted, you’ll need to have a lump sum of cash ready to pay the settlement amount.

Is DIY Debt Relief As Effective As Professional Debt Relief?

While seeking debt relief yourself is certainly possible, it’s often a lot more complex and timely than working with a professional debt relief agency. Professional debt reliefs have several primary advantages over DIY methods:

  • They spend all of the time on the phone and send preformatted letters so you don’t waste time.
  • The agency often has established relationships with creditors, which improves your chance of acceptance and speeds up the process.
  • Debt relief agents have experience and know what to say to ensure that you get the best deal and pay the least amount.

How To Get Debt Relief With New Financing

Debt relief programs are usually the easiest to start and get approved for because they don’t require you to apply for a new line of credit. Applying for a new line of credit can be particularly hard if you’re already behind on payments and creditors have made derogatory marks against your credit history.

However, if you’re in an excellent position to receive new financing, you can use a couple of different methods to get out of debt quickly.

Debt Consolidation Loans

A debt consolidation loan is a type of personal loan that is given out to consolidate all of your other smaller loans. For example, if you owe $3,000 to 5 different creditors, then you could get a $15,000 debt consolidation loan to pay them all off at once. Then, you would just make payments on that single $15,000 loan from the lender.

The advantage of debt consolidation is that you can pay off debts instantly and stop negative credit reporting and interest from accruing. However, the drawback is that the consolidation lender may require you to close your credit cards or make you pay higher monthly payments on the loan. At least you’ll only be paying one creditor, though, instead of having to pay multiple creditors every month.

Credit Card Balance Transfer

If your debts are smaller (usually less than $5,000), then you can attempt to perform a credit card balance transfer. You’ll consolidate all (or some) of your loans and transfer the balance to a new credit card. These cards often offer low-interest or no-interest payments for 12 to 18 months, which gives you time to pay the loan off without penalties.

This method is helpful for two reasons:

  • It pays off old debts instantly, stops penalties, interest, and negative credit marks.
  • You’ll build credit as long as you pay off the new credit card quickly and on time.

Debt Relief Options To Avoid

The chances are that you’ve also heard of some other common debt relief options in addition to the ones we’ve discussed so far. Perhaps a friend told you about something they did, or you saw a television commercial offering a service. While these methods can get you out of immediate debt, they often put you in a hole and have serious drawbacks that can hurt you later down the line. Here are some debt relief options to avoid.

Cashing Out Retirement Savings

The main reason to avoid cashing out your retirement savings or 401k early is that you could significantly hurt the growth of the account by removing valuable investment money. This could leave you with less money to work with when you’re retired and unable to work. Additionally, the retirement fund may charge you an early withdrawal penalty that could result in you losing even more money.

Reverse Mortgage or Borrowing Against Home

If you’re 62-years or older, then you can apply for a reverse mortgage on your home, which basically increases your mortgage payments for the amount you borrow. This is bad because it can mess up your budgeting plans and make you have to make mortgage payments for longer than expected. Reverse mortgages can often come with high APR, so they should only be used for emergencies.

If you’re younger than 62, then you can go to your home lender and borrow money against your home. It’s kind of like a title loan. If you are unable to pay back the loan, then the bank can take your home. As you can imagine, gambling with your home isn’t exactly an ideal situation.

Borrowing Against Life Insurance

Borrowing against your life insurance policy is similar to taking money out of your retirement account. You’ll often have to pay high interest rates on the amount borrowed and an early withdrawal fee as well. This can put you in just as much debt as you were in before!

Borrowing Money From Friends and Family

Unless you’ve got a super-rich friend or family member, then it’s best to avoid borrowing money from them. Although you might have the best intentions of paying them back, sometimes you may be unable to. This, in turn, can lead to disagreement and arguments that can tear your family apart and ruin friendships. It’s one thing not being able to pay your bank back on time, but quite another to not be able to pay your own family member back on time.

Is There A Government Credit Card Debt Relief Program?

The United States government does not offer a federal grant or program that can get you out of debt or eliminate your credit card debt (unless your debt is with the IRS, but that’s another story). The only federal protection you have against credit card debt is the ability to declare bankruptcy, which can forever ruin your credit.

Federal Regulation On Debt Relief

That being said, the federal government has passed a few bills that regulate the debt relief and debt collection industries. Let’s take a look.

The Credit Card Debt Relief Act Of 2010

This act ensures that debt relief agencies aren’t allowed to charge you an upfront fee to settle or manage your debts. Prior to this, it was popular for scammers to offer “debt relief services” and charge an exorbitant upfront fee. They would then run off with customers’ money.

This act accomplished two things:

  • Prevents scam operations.
  • Ensures that everybody can apply for debt relief programs, even if they don’t have the money upfront.

The Uniform Debt Management Services Act

This requires all debt management and relief agencies to register with the federal government. It also requires that they provide clients with full disclosure and offer them a penalty-free period of 3 days to cancel the program.

F.A.Q.s About Debt Relief

1. Do Debt Management Plans Work?

As long as you can keep up with monthly payments and pay on time, then a DMP program can certainly work. The one disadvantage of debt management programs is that they’ll typically freeze your credit card accounts, which means that you’ll have to learn how to live without the extra cushion provided by credit cards.

2. How Long Does Debt Management Take?

Most debt management programs take between 3 and 5 years to complete. This means that it’s not exactly a fast solution. However, keep in mind that debt consolidation loans typically take 3 to 5 years to pay off as well, so it’s not anything out of the ordinary. Unless your debt is small or you can move in with your family and make double payments on your debts, it will take some time.

3. Do Debt Settlement Plans Work?

As long as your creditor is agreeable and you’re working with a debt settlement agency that knows how to negotiate, then a DSP should work. Of course, your creditor could always refuse the settlement offer, which is why you should always work a AFCC (American Fair Credit Control) accredited debt relief agency. The more experience the agents have dealing with your creditor, the more likely your settlement offer will be accepted.

4. How Long Do Debt Settlement Plans Take?

Most debt settlement plans take between 1 and 4 years to completely pay off. Ultimately, it all depends on how much debt you have to pay off and how much money you’re able to set aside. The more money you can set aside to pay off the loan, the faster you’ll pay your settlement off.

5. Is Debt Consolidation Bad?

It depends a lot on how responsible you are. Debt consolidation loans can often give you a “clean slate” with your creditors, allowing you to go spend money on them again. If you’re not careful, you could end up in the same spot later down the road. If you do choose to go with a debt consolidation loan to pay off credit card debts, make sure that you couple your loan with responsible spending habits in the future.

6. What’s The Difference Between “Paid In Full” and “Settled In Full?”

Whenever a creditor closes your account, they’re required to mark the manner in which the account was closed. If you use a debt management program (DMP), then your accounts will be closed as “paid in full,” which is generally positive on your credit report. However, if you opt for a debt settlement plan (DSP), then your accounts will be closed as “settled in full,” which is generally a derogatory mark on your credit.