Handling your debt settlement can negatively or positively impact your long-term financial status. Sometimes just paying off your credit card debt can be damaging to your financial status.
To positively impact your financial status, you need to carefully analyze your decisions. You also want to avoid legal issues that could complicate an already escalating financial crisis.
Certain methods and mistakes will sabotage the most well-intentioned plans. Most importantly, you want to avoid increasing your credit card debt further.
1. Why Not To Close Your Account
Unable to meet rising interest rates and debt balances, some consumers simply opt to give up! Don’t fall prey to this trap. Simply closing the accounts, while it solves the issue of new debt, could cause problems. Closing an account may cause your credit rating to fall drastically and your interest rates to increase as a result.
Try this alternative: once you’ve made a decision not to use your credit cards, hide your card or cards away or cut them up. Make yourself a promise and keep it. No new credit card purchases. Meanwhile, continue settling your existing credit card debt. You will eliminate the debt and the spending, without negatively influencing your FICO score.
2. Beware Debt Consolidation
Debt consolidation is a popular debt relief option. And it has helped some people to settle debts and improve their financial picture. BE AWARE: it is not necessarily the best option for your situation. There is no one size fits all debt relief program.
With debt consolidation, you obtain a new loan from a new creditor that will pay off all your existing debt. Next, you settle those accounts by using checks issued to them by your new creditor. For example, the debt consolidators could be the new lender. You now have only one monthly payment, rather than several. You could also negotiate a low monthly payment on your loan. However, that may extend the life of your loan and payment period.
Of course, these debt consolidators charge an up-front fee. Your credit report may reflect your use of a debt consolidator, with the inclusion of a statement of “third-party assistance”.
3. Paying High Interest Rate
When the issue of credit card debt settlement arises, many debtors have late payments or are in default. Not talking to the credit card company is an obvious mistake frequently made by most debtors. Higher interest rates and fees are charged by the credit card companies as a result.
Talking with the company could solve this problem, since your being able to settle all of your debt balance is also in the interest of your credit card company. You now need to negotiate a lower interest rate and a payment schedule that you can meet. Once you have agreed on a lower interest rate, it’s important to make punctual payments to avoid voiding your agreement, adding more late payment charges to your balance, and raising the interest rate again.
4. The Hamster Wheel – Opting To Settle Minimum Balance
Making only minimum payments often contributes to increasing your credit card debt. If you pay only the minimum balance, your creditors love you. The creditor will be collecting a lot of interest from you on those minimum payments for a long time. If possible, try to make a payment for double your minimum amount as often as you can. You will eliminate a mounting pile of accumulating interest that could really hurt your financial future.
When using credit cards, the fantasy of an unlimited pool of money is easily believed. And the credit card companies have had a hand in the deception. Whether due to excessive splurging or having to pay monthly bills when unemployed, unimaginable credit card debts are an unwelcome reality for many Americans. Avoid these 4 common mistakes in credit card debt settlement.