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MoneyWatch: Managing Your Money
By Joshua Rodriguez
Edited By Angelica Leicht
/ CBS News
It can be easy to build up credit card debt over time. Spending a few dollars here or there can lead to high credit card balances if you aren't careful, especially when you factor in the interest charges.
And, if you have a significant amount of credit card debt, you may be feeling overwhelmed right now. After all, the highinterest rate environment isn't conducive to borrowingand stubborn inflation is likely impacting your budget.
You may have heard, though, that credit card companies may forgive your credit card debt. But are they willing to forgive high balances? And if so, will they forgive the full balance of what you owe?
Find out how a debt relief service can help you get rid of credit card debt now.
Do credit card companies forgive high balances?
The short answer is yes, credit card companies may forgive high credit card balances, but the only way to get all of your credit card debt forgiven is typically to file forbankruptcy. And, doing so can come with consequences, like temporary damage to your credit score and difficulty borrowing money.
But bankruptcy isn't the only way to get rid of credit card debt. There are other debt relief options that may be worth considering.
Learn more about your options for debt relief now.
Other debt relief options to consider
The otherdebt relief options to consider include:
Debt settlement programs
Debt settlement programs focus onnegotiating with credit card companiesto settle your debt for less than you owe, even if you have high balances. If negotiations are successful, the difference between the settlement amount and your total credit card balance is forgiven.
When you work with a specialist at a debt settlement company, you'll start with a conversation about your finances. The specialist will use that information to create a payment plan that is affordable and geared toward getting you out of debt faster.
You'll then make monthly payments to the debt settlement company instead of your lenders. Those payments are held in a special purpose savings account, and when enough money has been saved, they'll start negotiations with your lenders. If those negotiations are successful, you'll settle your credit card debt for less than you owe.
It's important to note, though, that these programs can have a negative impact on your credit score. You may also be required to pay income taxes on the amount forgiven by the lenders.
Debt management programs
Debt management programs work to create an affordable payment plan to get you out of debt as quickly as possible, which is done by negotiating better interest rates and terms with your lenders on your behalf. Following successful negotiations with the credit card companies, you'll make your monthly credit card payments to the debt relief company, which will pay the card companies on your behalf.
Your credit card balances aren't forgiven as part of a debt management program, but you could end up with a more affordable monthly payment and significant interest savings due to the lower interest rates and terms negotiated for you. And, because you aren't missing your monthly payments and no debt is forgiven as part of these services, debt management programs may have less of an impact on your credit score.
Debt consolidation loans
Another option to consider is using a debt consolidation loan to pay off your high interest credit card balances. Debt consolidation loans are a type of loan that is used to pay off your card balances, and these loans typically have lower interest rates than credit cards, which can result in significant savings on interest.
But debt consolidation loans don't just offer interest savings. They also simplify your debt payments by rolling all of your card debts into one loan with one payment each month. And, having one payment can be much easier to juggle compared to paying multiple lenders.
This option may not be available to everyone, though. The lending requirements tend to be higher, so you'll typically need a good credit score and debt-to-income (DTI) ratio to qualify for the best interest rates, and you could be denied altogether if your score is too low or there are other issues with your borrowing profile. And, the total amount you owe is high, you may have difficulty borrowing enough to consolidate all of your credit card debt into one loan.
The bottom line
The only way credit card companies are likely to forgive the full amount of your balances is if you file bankruptcy. However, there are other ways to get out of debt in a reasonable amount of time. For example, you may be able to have a portion of your credit card balances forgiven with a debt settlement program. Or, a debt management program could offer you a way out of debt with minimal damage to your credit. And debt consolidation loans may save you money on interest. But regardless of which route you take, it can help to start now. The longer you wait, the more your credit card debt will likely cost you.
This story has been updated to clarify the difference between debt management and debt consolidation programs.
