If you perform an internet search to look for ways to get out of credit card debt, you will probably find several options that look appealing initially. Credit card debt settlement, consolidation loans and even balance transfers all seem to be a way for you to regain control over your credit card balances.
Unfortunately, these very same systems that seem like they could help you may actually put you into a worse financial situation.
Credit card settlement often means new debt and bad credit
In a credit card debt settlement situation, you will probably make arrangements with a third party to communicate with your credit card companies and help you arrange a settlement that reduces what you have to pay.
However, to secure a settlement, you usually need to be able to make a lump-sum payment of the settlement amount. The company helping you arrange the settlement will probably provide you with financing. The settled cards will lower your credit score, and the payments you have to make each month could still strain your budget.
Debt consolidation loans are just more debt
Like with a credit card settlement, a debt consolidation attempt will involve opening a new line of credit and using that to pay the balances on your credit cards and other unsecured debts. You may get a lower interest rate or only have to make one payment, but the amount of debt you have is the same. Worse, you might wind up incurring even more debt on revolving lines of credit just to cover your monthly expenses.
Credit card balance transfers often come with hidden risks
A credit card company will happily allow you to transfer the balance from another account to theirs. After all, then they’re the ones receiving interest payments from you.
While these transfers may offer low introductory interest rates, the interest rate will likely go up if you don’t pay the account off quickly. You may also have to pay a flat fee that is a certain percentage of the amount you transfer.
Unlike these systems, Chapter 7 bankruptcy lets you discharge your credit card instead of trying to find a new way to pay it. Confirming whether you qualify for Chapter 7 bankruptcy could be your first step back toward control over your financial future.