Credit Card Debts

What are credit card debts?

Credit card debt is an unsecured consumer debt, acquired through use of credit cards. When you buy something with a credit card, the credit card company pays the store for your purchase. You are then required to pay back the amount plus an interest to the company at the end of the month. However, if you fail to make your payment, interest and penalties accrue. Continuous default on your part can cause the company to start collection procedures.

Credit card debts are higher in industrialized countries. The median credit card debt in America is $3,000 and the average number of cards held is two per person. The average U.S. college graduate embarks on his/her post-college life with more than $2,000 in credit card debt.

How to deal with credit card debts?

If you are deep in debt on your credit cards, then here are some great ways to deal with them.

First and foremost, you need to evaluate your financial situation. You need to thoroughly assess your assets, liabilities, and income. Depending on how much you can pay towards your debts, you can decide on your debt relief option.

If you have a steady source of income and you can pay back your debt over an extended period of time then you should go for credit card debt consolidation. By consolidating your debts, you can combine your multiple credit card debts into a single payment, which you can pay off over a long period of time and at a lower interest rate.

You may get your debts consolidated by

• Balance transfer: You can consider transferring all your balances from high interest cards to a card with a lower interest. This would not only reduce the amount of money you are devoting to the interest but also help you to get rid of your debts faster.
• Consolidation Loan: You can take out a low interest loan (a home equity line of credit is preferable) and use it to pay off your existing credit card debts. That will leave you with a single monthly payment towards the consolidation loan.
• Hiring a Consolidation Company: You can also sign up with an authentic debt consolidation company. When you enroll with a consolidation company, your debt issues are handled by the company. You make monthly payments to the company and it finds you a low interest loan to ensure that you become debt-free fast.

However, if you are not sure whether you can continue with payments for long, then credit card debt settlement would be a suitable option for you. In order to settle, you will need to negotiate with the creditor and agree on a reduced amount that the creditor will accept as full payment. You can either negotiate directly with the credit card company or you can hire a debt settlement company to negotiate on your behalf.

How does bankruptcy affect credit card debts?

If a customer declares bankruptcy, the law requires the credit card company to forgive all or most of the debts the customer owes to the company. However, there can be exception to it, if one or more creditors successfully challenge the discharge of debts or if the discharge is blocked by a bankruptcy judge on some valid legal ground.

Since debt forgiveness reduces profit, credit card companies usually offer another deal to their customers likely to file for bankruptcy. Such deals offer reduced interest rates, elimination of late fees and over-limit charges, and rearrangement of accounts so that the debtor can pay off the dues comfortably.