Get The Facts About Federal Credit Card Debt Relief
Are you struggling with credit card debt? You may qualify for assistance for federal credit card debt relief under the Credit Card Debt Relief Act of 2010. Dating back ten years, this law is in response to the out of control growth of consumer credit debt.
When credit card debt really started becoming untenable for many millions of American consumers, some debt relief companies began aggressively predatory practices. While others, some in business for decades, continued to offer real help for people, countless other services took advantage of desperate debtors.
On the plus side, many different legitimate debt relief programs have been introduced to the consumer market. While most have consequences that could last many years, in some cases those consequences are better than runaway debt with no end in sight.
In conjunction with these programs, the Federal Trade Commission (FTC) has passed several regulatory actions to protect consumers.
The purpose of these regulations is to protect consumers from predatory debt services that make grandiose promises that are usually not deliverable. Many of these companies ask for large up-front fees or offer little transparency on what is actually happening with your money.
And that’s where the Credit Card Debt Relief Act of 2010 comes in. This law is intended to prevent debt relief companies from charging these fees, especially before any accommodation with creditors has been reached.
This sort of federal credit card debt relief protection is invaluable for consumers who just want to get out of debt safely and securely. It seeks to stop “deceptive and/or abusive” practices by debt relief companies who go after people desperate for financial help.
The program is designed to help consumers who have more than $10,000 in unsecured debt, who are also facing some kind of financial hardship, perhaps a job loss, illness or other significant circumstance making repayment of debt untenable.
This Federal Credit Card Debt Relief program also protects creditors from losing out, either by consumers who don’t want to pay or so-called relief agencies who are not really fulfilling their agreement to assist consumers in settling debt.
Because bankruptcy is an unattractive option for all parties involved, creditors tend to be willing to work with legitimate debt consolidation or debt relief agencies, public or private, to help consumers get control of their debt.
This is good for the consumer, because they can begin to rebuild their financial situation. It’s good for the creditor, because something is better than nothing, and nothing’s what they get if they push the creditor into bankruptcy.
Best case scenario for all involved is for a service to help the consumer get control of their debt and pay ALL of it off. This is possible, and people do it every day. It can be tough with all these different services out there offering consumers “alternatives” to debt payoffs. This is where federal credit card debt relief regulation comes in.
These regulations help protect consumers, though they are not bulletproof and consumers should proceed with caution. The laws also help separate the good debt relief services from the scams.
One way this is done is the requirement for the service to disclose to the consumer the entire process to help them get out of debt or reduce their debt load. These disclosures should include all fees and other costs, the time frame and detailed expectations of all involved. Total transparency to protect the consumer.
Consumers are also offered an “out.” If they want to walk away from the program they can, with no additional fees.
What You Should Know About Credit Card Debt Forgiveness
When you’re deep in debt, feeling like there’s no way out, you look for every possible solution. In those situations, credit card debt forgiveness can seem like a miracle cure. Just the idea that someone will “forgive” your debt – just erase it completely – seems too good to be true.
The plain truth is this: there are no debt forgiveness or reduction options that don’t come with consequences. In the vast majority of cases, total debt forgiveness is not a viable option. Before you go thinking you might be the exception to the rule, here’s a bit of hard truth about credit card debt forgiveness.
- In many cases, only a portion of the debt is “forgiven”
- You are still responsible for a portion of the debt
- You may end up paying and still owing more
- You may be stuck with fees and extra charges
- Your credit will be damaged, likely for many years
However, if you are in a position where debt repayment is not possible, and your credit is already in shambles, you may want to consider the possible benefits of credit card debt forgiveness.
Why Would A Creditor Forgive My Debt?
Debt forgiveness generally falls into one of three solution categories: settlement, bankruptcy, or write-off.
A settlement offer is when you cannot pay the entire amount owed, but you can pay part of it, either as a lump sum or as a few payments. Creditors would rather have the full amount owed, but sometimes they are willing to take what they can get. In this situation, the amount they agree to will stand for the debt, and the balance will be “forgiven.”
This option is not without credit consequences. Previous late payments and any charge-offs related to this account will remain on your credit for several years. In addition, the debt may be listed as “settled for less than owed” or something similar on report.
In a bankruptcy, the court will discharge some or all of your debt. Some debts may not be included in a bankruptcy settlement. Be sure you speak to your attorney about this during the process. Despite what you may have heard, bankruptcy is not a simple debt relief solution, and it is not really credit card debt forgiveness.
Bankruptcy will stay on your record for a long time, hurting your possibilities of owning a home, buying a car or rebuilding your credit.
Credit card debt write-off might sound great – after all, “no more debt” – but that’s not the case at all. In fact, just because the creditor will no longer consider offering you credit doesn’t mean the debt just does away. It doesn’t. It’s still out there, on your record, and other creditors will see it.
Third party collectors buy “bad debt” and the cycle of hounding phone calls will start all over again. If you don’t pay, the collector can file a lawsuit against you. You might get stuck with the debt, plus interest, plus legal fees.
A Possible Alternative To Credit Card Debt Forgiveness
What would you think if we told you there are better options than credit “forgiveness” services? These options will require patience, discipline and you learning things you may not already realize. If you’re up for that, you may be able to get out of debt while rebuilding your credit, rather than destroying your financial reputation for years to come.
The first step is getting information you don’t have. Certified or licensed debt counselors can help you understand all your options, including programs that will actually help you pay down your debt, rather than offering false promises.
As the saying goes, when something sounds too good to be true, it probably is. This old saw is certainly true when it comes to internet searches for credit card debt relief. The online marketplace comes incredibly close to “try this one weird trick to immediately eliminate credit card debt.”
Is there Real Credit Card Debt Relief?
First Things First
There are three claims made by websites in response to a search for “government grants to pay off credit card debt.” The first is that there are many programs of this nature, and you need to act quickly before the money is gone. The second is that websites promoting government grants are fraudulent. The third claim is that those saying such programs do not exist are fraudulent.
According to USA.gov, the official website of the Federal Government of the United States, there is one program that provides a “reduced interest rate on mortgage payments or credit card debt.” That program is a provision of the Servicemembers Civil Relief Act (SCRA), and members of the military should check with their local Armed Forces Legal Assistance Office to see if they qualify for benefits.
It is not difficult to find legitimate credit card debt relief programs on the internet if you verify their status with an appropriate, reputable source. Two reliable sources of information are the National Foundation for Credit Counseling (www.nfcc.org) and the Financial Counseling Association of America (www.fcaa.org). It also helps to understand that debt relief companies fall into two broad categories: nonprofit and for-profit.
Two Categories
The Financial Counseling Association of America represents non-profit credit counseling companies. These organizations negotiate with credit card companies on behalf of the cardholder and reach a settlement that reduces the both the overall debt and the interest rate being charged. The downside of this approach is that the settlement negatively impacts the cardholder’s credit score, and the credit is permanently unavailable to the cardholder.
Private for-profit companies take over credit card loans by paying them off and making the cardholder a new loan. These companies often negotiate a lower payoff with the credit card company, which has all the downsides already discussed. For-profit companies may or may not charge a fee for this service. They may also require the cardholder to deposit funds in a dedicated account to provide added security against the new loan.
It is important to understand that either type of company can provide debt relief, and that unsustainable credit card payments need to be addressed in one way or another. Private for-profit companies provide a service to the cardholder and are compensated for that service. It falls to the consumer to fully understand the services, provisions, and consequences of that service.
Bankruptcy
Bankruptcy is the ultimate credit card debt relief. It eliminates unsecured debt, and it simultaneously eliminates creditworthiness. In this way, bankruptcy solves one problem and creates another. Life without access to credit is difficult but not impossible.
As with other solutions, the consumer must carefully evaluate the attorney and the type of bankruptcy that is appropriate to their situation. The Federal Trade Commission provides a detailed explanation of bankruptcy and the solutions it provides.
To echo the classic economics bromide: there is no free way out of credit card debt. Each solution brings with it a difficult new reality, and it is the responsibility of the cardholder to balance those costs against their current situation.
