Because credit cards can be easy to obtain, it can be easy to get in over your head with credit card debt. While they may be simple to carry and convenient for making purchases, credit cards have been the cause for rising consumer debt and countless personal bankruptcies throughout the years.
According to CreditCards.com, the average debt per credit card that usually carries a balance (in 2015) was just under $7,500. That same source also cites that the average credit card debt per U.S. adult – not including zero-balance cards and store cards – was $5,232. So it’s evident that once you’re in this type of debt, it can be extremely difficult to get out of—unless you have help.
Although the reasons behind these large and growing balances can vary, getting to a credit card settlement solution typically entails understanding exactly why the credit card abuse causes so much debt. After you have a handle on your “why,” you can then move forward on reigning in the “how” of eliminating the debt—and moving on to a more positive and debt-free financial future.
The Downward Spiral of Debt on Credit Cards
Being in credit card debt can be the result of a variety of situations, from poor choices about how you spend your money to changes that have taken place in the economy over time.
Some of the reasons why people may find themselves in credit card debt can include:
Poor Money Habits – It’s likely that the main reason people get in credit card debt is due to poor money habits that are passed down from their parents. For example, if your parents paid for everything with credit cards, then it’s likely you will pick up that trait as an adult too. Poor money habits can also include not saving for the future and/or spending more money than you earn, thus creating more credit card debt as time goes by.
Emergencies/Unexpected Expenses – Unfortunately, emergencies can and sometimes do come up. Car repairs, uninsured medical bills, and loss of income can all have an impact on your financial situation. Oftentimes when these events occur, a credit card can be the fallback source of financing.
Impulse Purchases – Those who have high credit card debt are usually more prone to making impulse purchases versus sticking to a list. They may also have a hard time simply saying “no” when it comes to items that they see and just “have to have.” Unfortunately, the result of most impulse purchases is that you end up with items you really don’t want or need, and you also increase the balance(s) on your credit cards.
Not Having or Sticking to a Budget – While having a household budget can help to keep you on track from a financial standpoint, a recent Gallup poll showed that only one in three Americans actually prepare a detailed budget that tracks their income and expenses. Without a clear-cut budget, it is much easier to spend on unnecessary items, which can in turn, lead to running up your debt.
Cost of Living Increase – The economy is partly to blame too. Over the past several years, the cost of living has outpaced the growth of income. Because of this, many people have had no choice but to cover the “gap” by paying some (or all) of their living expenses on their credit cards—at least until their income catches up. Unfortunately, this can often result in putting you even deeper into credit card debt—especially if there is no end in sight to your current financial situation.
Making Minimum Monthly Payments – Making only the minimum monthly payment on your credit cards can typically result in the debt spiraling out of control even faster. This is due to the enormous amount of interest that is being charged by the credit card companies.
So, what is the solution? There are some ways that you can change your situation. The good news is that the remedies for credit card settlement may not be as far out of reach as you may think.
The Key to Climbing Out of Credit Card Debt
While you may want more than anything to climb out from under your mound of increasing debt, the best way to tackle it is to first have a plan. In some cases, that calls for working with a mentor who can guide you along the way.
This is because simply making payments each and every month may not always be the most effective solution. Depending on the size of your debt and the credit card’s interest rate, going this route could be like chipping away at a mountain with just a tiny ice pick.
Although bankruptcy may seem like the only option for a in some cases—especially if you have maxed out your credit cards—this isn’t the only way out of large sums of debt.
Rather, by working with an experienced guide, you can determine a more viable solution that may be best for your specific situation such as debt settlement or debt consolidation.
A credit card debt settlement program can help you save as much money as possible. This process entails negotiating a reduced balance on your total amount of credit card debt that will then be regarded as your full payment. While debt settlement can help you to ultimately pay much less than you initially owed on your account, you also need to be mindful of some things when going about this process.
For example, the lender or collector in a credit card settlement will often report the debt as “settled for less than agreed.” This can be damaging to your credit report – although it is still much better than showing a bankruptcy. Another potential drawback of credit card settlement is that the settlement company will oftentimes charge a fee that comes out of your monthly payment. This isn’t always the case, though, as some credit card settlement companies will work on a performance based system where they only make money once the settlement has been resolved.
Based on the amount of credit card debt you have, a debt settlement program can gear your credit card settlement as either a monthly payment or just one lump sum – whichever makes more sense for your situation. If you are choosing the debt settlement solution, it is best that you not make any additional purchases on your credit card, as this will only increase the amount of credit card debt that you will have to either pay off or settle.
A credit card settlement company will take into consideration several factors, including your overall financial situation, as well as your specific hardship. Also, some of your creditors can be more difficult to work with, so the settlement from each creditor may differ.
When choosing a settlement company to work with, you should consider several factors about the settlement company. For example, not all companies will offer FSCPA violation protection – even though doing so can lead to getting better settlements. Therefore, you should stick with credit card settlement companies that offer this protection.
Also, not all debt settlement companies will offer credit restoration to challenge incorrect information from your credit report. This, too, should be an important item on your list of settlement companies to work with. So, you should ideally look for a company that offers credit restoration when your settlement is complete, and eliminate the others.
One more thing to consider when choosing the best company to work with are customer reviews. Take note, not all reviews are equal. Many of the comprehensive reviews which are found online are paid for by companies to further advertise their services. Real client reviews can be found on third party review sites like Customer Lobby, Shopper Approve among others. A company that has been in the industry for quite some time will have hundreds of reviews over an extended period of time.
Debt Consolidation Loan
If you have more than one credit card balance, debt consolidation could be beneficial. This is because some or all of your balances could be combined into just one loan—oftentimes with just one smaller monthly payment as well as a lower interest rate. This can ease your financial burden significantly.
However, there are some potential downsides to this credit card debt solution too. For instance, the term of your new loan could be quite a bit longer than the term(s) of your original obligations. This could, in turn, actually make your total amount of repayment higher.
Also, if you have to pledge assets as collateral for the new loan, you could end up losing the assets if you aren’t able to pay this new loan back. Having someone assist you with the debt consolidation process can help to ensure that you’re going with a reputable lender and that you’re getting into a new loan that will be within your repayment parameters.
It can be well worth it to check into the solutions that are available to you. And the sooner you do so, the more quickly you can rid yourself of the burden of debt that may be continuing to grow each month. How would this change the rest of your life?