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6 Myths About Settling Credit Card Debt - Self Improvement

6 Myths About Settling Credit Card Debt

This time of year, many are overwhelmed with credit card debt created from overshopping during the holidays. Nowadays, almost every buyer prefers using a credit card rather than using cash for shopping. The same rule applies to online shopping. However, everything has its pros and cons. One of the major problems associated with the use of a credit card is the freedom of buying beyond our purchasing power.

As a result, many a time we end up piling our credit card bills. Overdue bills create lots of stress. The situation becomes more difficult if we are facing a financial crisis. It is during this time that we become more vulnerable to options that promise to help us in clearing our debts by paying far less than the actual debt amount. Is this possible? OR it’s just a myth?

The debt settlement option seems attractive, but before making any decision, you need to be aware of the difference between truth and myths. A clear understanding of the facts related to credit card debt settlement would help you in making the right decision that would not only help you in clearing debts but would also have minimal or no effect on your credit report.

Most common myths relating to credit card debt settlement

1. You can cut your credit card balance for any reasons

One of the most popular sayings about settling a credit card debt is that every individual is eligible for debt settlement. Well, it’s untrue. There is a screening process for a credit card debt settlement.

Both credit card and debt settlement companies do their checks and see whether the applicant meets the debt settlement criterion or not. Even if the applicant qualifies, he/she may not get the desired reduction on their credit card debt amount.

Debt settlement is generally for people who are facing some financial crisis in their life. This includes reasons like medical problems, loss of job, divorce, underemployment, or death.

If you want to apply for debt settlement, it’s advisable to consult a professional firm like “snap finance.” They would check your current financial status and confirm if it’s the best option for you and whether you are eligible for debt settlement or not.

2. From debt relief programs get either debt settlement or bankruptcy

It’s again a misconception. Debt settlement or bankruptcy are not the only options for settling a credit card debt. The best-suited debt settlement option varies from individual to individual. It depends on various factors like the individual’s current financial situation, credit history, the debt amount, etc.

For example, in the case of loss of a job, the debtor can contact the credit card company. Tell them about the ongoing financial situation, and in return, the credit card company might allow the debtor to either pay the debt amount in smaller amounts or may even give approval not to make any payment for some time. Though the debtor might be charged with the interest for the missed months, it would buy the debtor some time to work on his/her finances and clear the debt.

If the situation gets out of control, consulting some non-profit credit counseling firms would be a very good option. They would not only help the debtor in selecting the best debt settlement option but would also help the debtor in managing his/her funds, as well as expenses.

3. Debt settlement companies are safe

Numerous debt settlement companies are available in the market. Each promising to get the best negotiations for their customers. Every firm seems more promising than others in their advertisements. But, while selecting a debt settlement firm, you need to be careful. Not every firm is legitimate.

Many people have reported being cheated by debt settlement companies. If you are planning to apply for a debt settlement, remember all organizations are not the same. Some firms try to scam people by charging them hefty fees. A good and authenticated debt settlement firm would be honest to their customers and would not advise a solution (e.g., consolidation loan) that might worsen their financial difficulty.

Also, try to avoid companies that are not registered with the state and would ask you to pay the debt amount even before contacting the credit company. If you want to be more cautious, try to avoid firms that ask you about your financial and personal details before giving their company details.

Characteristics of a legitimate debt settlement company

  • Transparent about their fees and other related costs.
  • Have a written company policy regarding their debt settlement process.
  • Gives an estimation of both time and money that the negotiation process might take.
  • Discuss all the resolutions with you before presenting it to the credit card company.

Do thorough research while deciding on the debt settlement firm. It is the most crucial step. The right decision would help you save time, money, and effort.

4. Credit card debt settlement would improve the credit report immediately

The truth is, paying a part of the total debt amount would lower your credit score. Improving the credit score would take some time. It’s advisable not to get involved in any new debt after the settlement.

5. If you fail to settle, your debt stays forever

Each state has a statute of limitations for collecting credit card debt. Generally, a time limit clause is associated with the collection of credit card debt. If the debtor does not make the payment due on their credit card for a very long period, then the creditor won’t be able to take the debtor for the debt, as it won’t be enforceable in the court of law.

Some firms purchase old credit card debts and then try to settle with debtors and even offer to pay some percentage of the debt amount, which is generally less than the actual debt amount. Clearing such debt won’t serve any good as they won’t be of any help in repairing your credit history. In addition to this, the non-payment of the credit card bill drops away from the credit report after 7 years.

6. Once the negotiations get done, you can be out of debt

All credit card debts are not eligible for debt settlement. There can be numerous reasons behind this; for example, the amount of the debt. Credit card companies generally set a minimum debt limit for considering it for negotiations. Besides this, not all kinds of debts are eligible for debt settlement. This includes alimony, student loan, child support, and taxes owed. The list also includes secured loans such as car loans and mortgages.

Myths result from the lack of information, and they can be highly misleading. Hence, before believing any myth related to settling credit card debt,  do your research and check the facts correctly. Believing something which is not true might cause you heavy losses in terms of effort, time, money, and mental peace. If you are going through a bad financial phase and are finding it hard to deal with debts, consulting a professional would be an excellent option.

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