If you are dealing with and struggling to pay off a lot of credit card balances, there are several strategies that can help you manage or eliminate them. Here are three options you can use to help you out in a stressful situation with unmanageable credit card balances.
File Chapter 7 Bankruptcy
Filing Chapter 7 bankruptcy is a helpful strategy when you have credit card debt and your income is not enough to cover all your expenses. If you are at the point where creditors are calling you regularly, filing Chapter 7 bankruptcy can place an automatic stay on any creditors, forcing them to stop contacting you during the bankruptcy process. If a collector continues their collection attempts on you after you have filed bankruptcy, they will be violating the bankruptcy automatic stay. If they do contact you, let them know you have filed bankruptcy. If that does not work, report them to the bankruptcy court.
Your bankruptcy attorney will make sure you qualify for bankruptcy relief by completing a bankruptcy means test on your current financial situation. Then, your attorney will help you complete the necessary paperwork to file Chapter 7 bankruptcy with the local courts. On a chapter 7 bankruptcy, you will no longer be responsible for all debts that are discharged, but it will lower your credit score and remain on your report for 10 years. But over time, you will be able to apply for new credit and have a new start with your credit with your old debts.
Negotiate with Your Credit Cards
When you have unmanageable credit card debt, it can be difficult to pay it down for several reasons. One reason may be because you are paying on a high rate of interest. For this reason, it can benefit you to call your credit card companies to ask if they can lower the interest rate on your account. Your credit card companies' willingness or ability to lower your interest rate can be based on your payment history and the length of time you have been a customer. But it doesn't hurt ask, and if you don't ask the answer is always going to be no.
If you are a good customer, your credit card will want to keep your business and offer you a lower interest rate. Any new rate they give you may be permanent, or temporary for the next several months. Even if the lower interest rate is only temporary, take advantage of it. Then, add an extra amount into your minimum payment each month to help pay down the balance faster while the interest rate is decreased.
This type of strategy will not hurt your credit, but will improve your credit as your credit card balances decrease as you pay them down. It is a good idea to keep each of your balances at or below 30 percent of your credit limit to help your credit score increase. Whether or not your balances are at or below this 30 percent threshold counts toward 30 percent of your credit score.
Transfer Your Credit Card Debt
When most or all your debt is credit card debt, it is a revolving debt, and interest is usually compounded monthly on your card's average daily balance. This can make it difficult to manage your credit card balances to pay them down. When you make a minimum payment, interest is added back onto the balance after the billing cycle ends. In other words, your balance decreases when you make your minimum payment, then increases again when the interest is added on. Also, on a revolving account, there is no set time limit to pay off the loan.
On installment loans, all the interest over the life of the loan has already been added into the loan balance and calculated into your payments. So, if you can qualify for a signature loan, home equity loan if you own a home, or another personal loan with your bank, you can use it to pay off your high-interest revolving credit cards. This transfers the balances into an installment loan, which has a designated loan pay-off date.
This strategy can help your credit by the possibility of diversifying the types of credit on your credit report, as your mix of credit is used to calculate 10 percent of your credit score. The more diversification in types of credit accounts you have, the more it can help your credit score. Just be careful not to charge up your credit cards again.
Use any of these three strategies to help you manage your unmanageable credit card debt. For more information, contact resources like Richard S. Ross - Bankruptcy Attorney.