How to Reduce Your Debt

There are options available for individuals struggling to make credit card payments. Unfortunately, even if a bank decides to cancel some of your credit card debt, the “charge off” or “write off” as it is known, will remain on your credit report for seven years. This is somewhat better than in a bankruptcy situation where the black mark stays on your report for 10 years. Such a notation on your credit report will cause your credit score to drastically drop.

Options Available:

• Approach the bank and ask to be allowed to pay off less than the full amount owing. Some banks will forgive up to 70 percent of a consumer’s debt, rather than have you claim bankruptcy as risk being paid nothing at all.
• Ask for a reduced interest rate.
• Ask for any late fees to be waived.
• Speak with a non-profit credit counselor for advice.

Having your total debt reduced probably sounds like the best option, but of course it is not that simple. Individual circumstances are evaluated on a case by case basis. You stand a better chance of being considered if you are at least 90 days behind on your payments AND you otherwise have a good payment history with the company.

Also, there are some risks that are inherent in asking for a debt reduction from your bank that you should be conscious of. Other credit card companies may view you as a bigger risk and raise your interest rates, which in the long term can cost you a significant sum of money, especially if you are eventually looking to buy a home or refinance your existing mortgage. If seven years have not passed since your debt reduction, your credit report will cause the new banks to pause before offering you their best rates.

Ultimately, it is important to realize that a step such as debt reduction, or even more seriously, bankruptcy, is a drastic action and can affect your finances for a long time. Be sure you have explored all avenues carefully before moving forward with such a step.