Credit card debt reduction services are available for cardholders who are having difficulty paying their credit card bills. Problems arise that are sometimes out of the cardholders’ hands. Credit card debt reduction companies offer solutions to create manageable terms to pay credit card debts. These alternative payment methods settle debt so that cardholders can get on with their lives and begin rebuilding their credit. Debt reduction methods may include debt consolidation and debt negotiation. There are pros and cons that cardholders must be aware of before making this decision.
Pros of Using Credit Card Debt Reduction Services
- The principal amount due on the credit cards is reduced dramatically. Cardholders may find themselves in a position where they only pay as little as 40% of the debt they owe. This is a remarkable savings compared to what they owed. Imagine owing $10,000 in credit card debts and only paying $4,000 back. The $4,000 savings can be used to invest money, or it can be placed in a savings account to build interest.
- The terms of the debt can be reduced greatly. Along with the amount of money being reduced, cardholders can also reduce the repayment length. For example, it may take cardholders 5 years to pay off existing credit card debt. With debt reduction programs, the repayment terms may be reduced to as little as 2 to 3 years. It all depends on the negotiation terms.
- Cardholders pay lower monthly payments. Much of the interest and principle is reduced on the credit card debt. Cardholders can save a great deal of money by using credit card reduction services.
- Cardholders may eliminate frustrating calls from creditors. Credit card reduction companies try to make contact with the creditors to negotiate debt. The representatives from the debt reduction company then make contact with the creditors to discuss the debt. Cardholders may get a call from creditors from time to time, but the contact should decrease dramatically once the credit card reduction services begin. In the event creditors contact cardholders, they should direct the calls to the debt reduction agent.
- Debt Reduction is a better alternative than filing bankruptcy. Instead of not paying any of the credit card debt, the cardholders agree to pay a portion of the debt. Bankruptcy can ruin credit for 7 years. Debt reduction services do not hurt credit in the long run because the creditors agree to the services.
Cons of Using Credit Card Debt Reduction Services
- Cardholders may experience a temporary lowering of their credit score. Credit card debt reduction services are a better option than filing bankruptcy, but it can hurt the credit. A temporary reduction in credit score can be expected.
- Lower settlement amounts can cause problems during tax season. When the creditors take less than the amount of debt owed, cardholders must file the forgiven amount as income. When creditors take $600 less than the owed amount, cardholders must file a 1099- C form when they file their taxes. For example, when creditors accept $1000 on a $2000 debt, the cardholder must file the forgiven amount of $1000 as income.
- Not all credit card companies accept debt reduction offers. Although some credit card companies are happy to accept less than the amount owed, some are not willing to work with these companies. Instead, either they want the full amount, or cardholders must work out an option with the creditors.
- Creditors may continue to call and harass cardholders about payments. There is no guarantee that the creditors will stop calling once the account is in the hands of debt reduction companies. Cardholders can expect to continue to receive letters in the mail and telephone calls until the debt is settled. Constant harassment from creditors can be a great source of stress for cardholders.
- Once the debt is settled, the creditors may keep the debt on credit reports for up to seven years. Even after the credit card debt is long gone, cardholders can still suffer from repercussions of their past credit card problems. Creditors place a statement on the credit report that lets potential creditors know that the debt was paid at a lesser amount. Doing so may prevent cardholders from receiving credit in the future.
The pros outweigh the cons on using credit card debt reduction services. Using these services can help cardholders take care of their debts so that they can get on with their lives. Credit card problems do not have to cause problems for cardholders for the rest of their lives. Financial freedom is not out of reach.