Credit Card Relief Programs in 2023 can give you one low monthly payment and get you out of debt faster, but if you’re on the wrong plan, you can end up in worse financial shape in the end. So before signing up for a credit card relief program, review each option’s “Pros” and “Cons” as listed below. Additionally, working with reputable companies and organizations is vital to avoid scams and fraudulent schemes. You can find top-rated debt relief companies right here at NoMoreCreditCards.com.
Ideal candidates for a credit card relief program include anyone struggling to pay off their debt due to either high-interest rates or balances. There are several types of credit card relief programs, including:
- Debt settlement programs, also known as credit card debt forgiveness, debt relief, resolution, or negotiation, involve negotiating with creditors to settle credit card debts for less than the total balances owed.
- Debt management plans (DMP), also known as consumer credit counseling programs, are best offered through nonprofit credit counseling agencies and involve consolidating multiple credit card debts into a single monthly payment, often with reduced interest rates and fees.
- Debt consolidation loans and balance transfer cards offer a low or 0% introductory interest rate for a limited time period, allowing the cardholder to transfer their existing credit card balances and pay off the debt without accruing additional interest or through one low-interest loan.
- Hardship programs: Many credit card issuers offer hardship programs that allow cardholders to temporarily reduce or suspend their monthly payments if they are experiencing financial hardship.
- Bankruptcy debt relief is another option that can be used as the last-case scenario, so we’ve included it in our list of credit card relief programs for 2023.
Credit Card Relief Program # 1: Debt Settlement
A debt settlement program typically works as follows:
- Consultation: The debtor meets with a debt settlement company or debt relief attorney to discuss their financial situation and determine whether a debt settlement service is viable.
- Analysis: The debt settlement company or attorney analyzes the debtor’s debts, income, and expenses to determine how much the debtor can afford to pay each month.
- Account setup: A debt enrollment specialist must retrieve and review the consumer’s credit report to determine what accounts qualify for the program. The debtor can then enroll qualified accounts into the debt settlement program. Next, a single monthly payment gets scheduled. This payment goes into a savings account in the client’s name that the company can monitor.
- Negotiation: The debt settlement company or attorney negotiates with the debtor’s creditors as monthly payments accumulate in this account, working to settle each debt one by one.
- Settlement: After a settlement gets negotiated, the debtor makes a lump-sum payment for the agreed-upon amount from their program account paid directly to the creditor. The balance on the account is then brought to zero, even though the client only paid a fraction of the total initially owed.
- Repeat: The debtor continues making monthly payments into their debt settlement program account until all their debts are settled and paid.
Benefits of a Debt Settlement Program:
- Reduced debt: Debt settlement programs allow debtors to settle their debts for less than the full amount owed. This can significantly reduce the overall amount of debt the debtor owes.
- Consolidated payments: Debt settlement programs can consolidate multiple debts into a single monthly payment, making it easier for the debtor to manage their finances.
- Faster debt resolution: Debt settlement programs can resolve debts more quickly than other debt relief options, such as debt consolidation or consumer credit counseling.
- Professional negotiation: Debt settlement companies or attorneys have experience negotiating with creditors and can often secure better settlement terms than debtors would be able to on their own.
- Alternative to bankruptcy: Debt settlement can be an alternative to filing for bankruptcy, which can significantly impact a debtor’s credit score and financial future.
Downsides of a Debt Settlement Program:
- Damaged credit score: Debt settlement only works if the debtor falls behind on monthly payments and eventually each debt gets written off and sold to third-party collection agencies. Consequently, credit scores will take a hit. After accounts are with a collection agency, at that point they can be reduced and settled for a fraction of the balance that was initially owed.
- Additional fees: Some debt settlement companies may charge high upfront fees and ongoing monthly fees. At NoMoreCreditCards.com, we review debt settlement companies, such as Accredited Debt Relief, that offer a performance-based debt settlement program—this type of plan charges fees after each debt settlement occurs.
- Tax liabilities: Debtors may be required to pay taxes on the amount of debt forgiven through a debt settlement program, similar to how a person would have to pay taxes on money they won from the lottery or obtained from a bonus at work. However, since the savings on a settlement isn’t truly “extra income,” there are special IRS forms a debtor can fill out to illustrate insolvency and not have to pay taxes from the settlement’s savings that a licensed account can help you with.
- Unpredictable outcomes: There is no guarantee that debt settlement negotiations will be successful, and creditors are not obligated to accept a settlement offer.
- Legal action: Debtors who cannot pay their monthly payments in full every month may face legal action from their creditors, which can lead to creditors pursuing legal action against the debtor (e.g., issuing credit card summons and lawsuits). Ask the debt settlement company about their lawsuit defense policy if you receive a summons while on the program.
Credit Card Relief Program #2: Consumer Credit Counseling and Debt Management Programs
Consumer credit counseling is a service provided by non-profit organizations that help individuals who are struggling with credit card debt to better manage their monthly payments and get out of debt faster. Here are the typical steps involved in the process:
- Initial Assessment: The first step is to assess the individual’s financial situation, including their income, expenses, and debts. The credit counselor will evaluate the client’s budget, credit report, and other financial documents to understand their situation better.
- Budgeting: Based on the assessment, the counselor will work with the client to create a budget that takes into account their income and expenses. This will help the client to better manage their finances and live within their means.
- Debt Management Plan: If the client’s debt is unmanageable, the counselor will work with them to create a debt management plan (DMP). A DMP is a payment plan that consolidates the client’s debts and allows them to make one consolidated monthly payment to the credit counseling agency, which then pays the client’s creditors.
- Negotiations: The credit counselor may negotiate with the client’s creditors to lower interest rates or waive late fees, which can make it easier for the client to pay off their debts.
- Credit Education: The counselor will also provide education on credit management and budgeting, helping the client to develop good financial habits that will serve them well in the future.
- Follow-up: The counselor will work with the client over time to ensure that they are making progress toward paying off their debts and managing their finances effectively.
Benefits of Credit Counseling
- Late fees can be “waived” with debt management.
- Interest rates can be “lowered” on a debt management plan.
- Overall monthly payments can be reduced once getting approved for the program.
- Clients are only responsible for a single monthly payment, making life easier.
- No creditor harassment should occur when using a debt management plan.
Downsides of Credit Counseling
- Third-party adverse notation is reported on a person’s credit report, illustrating accounts are being managed by a consumer credit counseling.
- Debt management plans last, on average, for 48-60 months, which can be longer than if a person were to join a debt settlement program.
- The monthly payments are typically higher than with debt settlement programs.
- Some debt management companies will charge high upfront and monthly fees. Therefore, consumers should only enroll with a nonprofit BBB “A+” Rated Company. Top-rated consumer credit counseling companies listed on NoMoreCreditCards.com only charge a maximum of $75 to enroll and under $50 per month.
Credit Card Relief Option #3: Consolidation Loans
Debt consolidation loans are a type of loan that allows individuals to consolidate their high-interest debts into one lower interest loan. The point of a consolidation loan is to help the debtor save money in interest and make it easier for them to pay off their debt only having to pay one loan every month.
Here’s how it works:
- Applying for a loan: The individual applies for a debt consolidation loan from a bank, credit union, or other financial institution.
- Evaluating eligibility: The lender evaluates the individual’s credit score, income, and debt-to-income ratio to determine whether they qualify for the loan.
- Approval and loan terms: If the individual is approved for the loan, the lender will provide them with the loan amount, interest rate, and repayment terms. The interest rate on a debt consolidation loan is typically lower than the interest rates on credit cards, personal loans, or other debts being consolidated.
- Paying off debts: The individual uses the loan funds to pay off their high-interest debts, leaving only the consolidation loan to repay.
- Repaying the loan: The individual makes regular monthly payments on the consolidation loan until it is fully paid off.
Debt consolidation loans can be a good option for individuals who have multiple high-interest debts and want to simplify their monthly payments and potentially save money on interest charges. However, it’s important to make sure that the interest rate and loan terms are favorable and that the individual can afford the monthly payments. It’s also essential to address the underlying financial behaviors that led to the debt in the first place, such as overspending or lack of budgeting, to avoid falling back into debt.
Benefits of a Debt Consolidation Loan:
- Easier to manage multiple debts: Consolidating various debts into a single loan can make it easier to manage your finances by simplifying your payments and reducing the monthly bills you need to pay.
- Lower interest rates: Debt consolidation loans may offer lower interest rates than credit cards or other high-interest debts, saving you money in interest charges over time.
- Lower monthly payments: By extending the repayment term of your debt consolidation loan, you can lower your monthly payments, which can help you manage your budget more effectively.
- Improved credit score: Making timely payments on a debt consolidation loan can improve your credit score over time because it demonstrates that you can manage your debts responsibly.
- Reduced stress: Consolidating your debts can reduce the stress and anxiety of managing multiple debts and struggling to pay monthly payments.
Potential Downsides of a Debt Consolidation Loan:
- Additional fees: Debt consolidation loans may come with additional fees, such as application fees, origination fees, and prepayment penalties, which can add to the total cost of the loan. Especially for applicants with a credit score of 700 or less, beware of loans with high fees.
- Longer repayment term: Extending the repayment term of your debt consolidation loan can lower your monthly payments, but it also means that you will be paying more interest charges over the life of the loan.
- Risk of default: If you cannot make your payments on your debt consolidation loan, you may risk defaulting on the loan, which can damage your credit score and lead to collection actions.
- No guarantee of approval: There is no guarantee that you will be approved for a debt consolidation loan, particularly if you have a poor credit score or high debt levels.
- The temptation to use credit cards: Consolidating your debts with a loan may free up space on your credit cards, which can be tempting to use and lead to additional debt.
If you decide on a debt consolidation loan, work with reputable lenders and carefully review the terms and conditions of any loan offer to ensure you fully understand the costs and repayment terms.
Bankruptcy (BK) for Credit Card Relief
Bankruptcy may be an option for individuals struggling with unmanageable credit card debt who cannot afford the above credit card relief options. However, bankruptcy should be a last resort, as it can have significant long-term consequences on a person’s credit and financial future.
There are two types of bankruptcy that individuals may consider for credit card relief:
- Chapter 7 Bankruptcy is the fastest way to eliminate most types of debt, including credit cards and lawsuits. In exchange, the individual must liquidate some of their assets to pay off their creditors. However, certain assets, such as a primary residence, personal property, and retirement accounts, may be exempt from liquidation.
- Chapter 13 Bankruptcy allows individuals to pay off their debts over time while keeping their assets. Chapter 13 bankruptcy payment plans last for around five years. Whatever balances remain after five years get discharged. Individuals with a steady income may not qualify for chapter 7 bankruptcy, the preferred method, so they will be forced to file chapter 13. Also, for consumers that want to avoid liquidating their assets, chapter 13 may be a better option.
It’s important to note that bankruptcy has significant long-term consequences, including a negative impact on credit scores and the ability to obtain credit. In addition, bankruptcy filings remain on credit reports for up to ten years, making it more challenging to secure future loans, mortgages, or credit cards.
Therefore, exploring other options for credit card relief is crucial, such as debt consolidation, credit counseling, and debt settlement.
Is there a credit card forgiveness program?
There is no official credit card forgiveness program, but debt negotiation programs can result in a portion of your debt getting forgiven.
Original creditors often will not offer to reduce the principal balance but may offer a reduction in interest rates. However, after an account is past due to the point where it’s written off and sold to a third-party collection agency at that point, it can get settled for less than the total balance. The other portion of it gets forgiven.
Also, federal student loan relief programs come with debt forgiveness options. Students can apply directly through https://studentaid.gov/ for this type of relief.
Tax consequences can result from debt forgiveness.
What is the new credit card debt giveback program?
What is the FDR relief program?
The FDR program stands for Freedom Debt Relief, a debt settlement service. FDR is A+ rated by the Better Business Bureau (BBB) and accredited. They have been in business for twenty years. The company has 356 BBB complaints in the last three years, of which 118 were resolved in the last year. Their average customer rating is 4.4 out of 5 stars from 1,372 reviews. However, this rating and their reviews may change over time. Check on your own at the BBB for the most updated figures about FDR.