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Four Options to Pay Off Credit Card Debt

2 October 2011

Paying off your credit card debt is something that no one wants to do, and no one even really wants to think of. But if you ever want to get a mortgage, it’s something you’re going to have to do. You might as well go into that phone call with the credit card collector knowing what your options are for paying it off.
Lump Sum Settlement
Credit card companies will often offer you one lump sum that is lower than the total balance. You get a better deal on the debt you owe, because it’s been lowered; and the credit card company gets a better deal because they get their money, and they no longer have to spend time, money and effort on chasing you down. Even though it’s called a “lump sum settlement,” many credit card companies will actually let you divide that amount up into three different payments. Be very clear with the credit card company that the lump sum will cover ALL monies owed, and that you won’t have any nagging reminders left on your credit score afterwards. Your credit score should improve as soon as you pay off that debt.
Payment Arrangement
Payment arrangements, of course, can always be worked out with a credit card or collection agency. In this scenario, you and the company will work out a reasonable, realistic payment plan for you to pay back a little at a time. There are a few very important things to consider when using this option!
The first is that you need to make sure the amount owed is one that you can actually pay. If you agree to a payment arrangement and then break that arrangement, it’s going to look worse on your credit report and the company will be far less likely to work with you in the future.
It’s also important to ask about fees and interest; specifically, the company’s ability to get rid of them. You don’t want to be paying off late fees or ghastly interest rates when really, you just want to pay off your debt. Many companies will be happy to waive these fees just in order to get their money back. And often, they’ll even waive past late fees and interest.
Debt Management
Some people can’t stand the thought of haggling and negotiating with credit card companies, or for that matter, even speaking to them. With a debt management company, you won’t need to. Hand your debt off to another third party and they’ll consolidate it all into one debt. They’ll buy your debt from your creditors, and you’ll then owe the debt management company.
The upside to this? You don’t have to talk to credit card companies about your debt, yet you still get a realistic and reasonable payment arrangement to pay it off. The downside? If you don’t pay this debt, you’re then in trouble with yet another company, and your credit report could be even more damaged than it was before.
If you’re dealing with a very forgiving and understanding company, they may be able to offer you forbearance for a period of time. Forbearance is when the creditor offers you several months in order for you to get back on your feet and come up with the money to pay off the card. You will owe no money during this time.
Forbearance can be a great gift, but there’s a very big warning too. Credit card companies are likely to not be as forgiving once the forbearance period has ended, often becoming even more aggressive in their collection efforts because they’ve already given you a bit of a break. Also, this does nothing to reduce or eliminate your debt. You’ll still owe every penny once that time is over.

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