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3 credit card debt solutions that don’t really help

On Behalf of | Feb 22, 2023 | Bankruptcy

Inflation and stagnant wages have created the perfect situation for credit card debt across the United States. When staples like gasoline and groceries cost more than normal, people’s budgets may fall short. At least initially, someone’s first response may be to use their credit cards to handle those additional expenses. Credit cards do provide financial flexibility that can help people minimize the impact of budgetary shortfalls.

If a household has unexpected expenses one month, like car repairs or medical bills, credit cards can help cover those exceptional expenses or other routine costs. Unfortunately, unless someone quickly pays off their balance, it will start creeping up. They will eventually be unable to pay down the balance and may only make minimum monthly payments.

At that point, people often start considering credit card debt solutions, but the three systems below often cause more harm than people realize.

1. Credit card settlement

Hearing a company advertising about how they can get a credit card company to settle for a fraction of the total balance due may sound too good to be true. That’s because it actually is.

Debt settlement companies are for-profit organizations that will offer someone financing and then charge interest on those payments. The settled cards can report the incomplete payment to the credit bureaus, and the borrower may end up without enough revolving credit to balance their budget.

2. Credit card consolidation

Much like debt settlement services, credit card consolidation company offers typically involve taking on a new loan. The interest rate may not be that much better after the introductory period for the consolidation loan.

There could also be numerous fees involved, and the borrower can expect to lose access to their credit cards just as they would in a settlement scenario. If the consolidation company does not close off someone’s revolving lines of credit, that might just mean they end up with much higher overall debt levels.

3. Credit card balance transfers

Moving a balance from one credit card to another is not a solution. Unless someone pays the whole balance off in a short amount of time, they may have to pay fees and interest, just as they would on their original card(s).

Bankruptcy is actually a solution for credit card debt because it discharges the balance owed. The person filing won’t have to worry about continuing to make payments because, if their bankruptcy proceedings are successful, they will obtain a discharge. Learning more about different credit card debt solutions can help individuals who are struggling with debt better perceive the value of filing for personal bankruptcy.