How Credit Card Debt Relief Can Help You Avoid Bankruptcy

Most debtors want to avoid ending up in bankruptcy court.

Most debtors want to avoid ending up in bankruptcy court.

Bankruptcy is generally acknowledged as the least desirable long-term option for debtors, although in some cases, it remains the most-effective option. However, if you can get a handle on your debt with just a little assistance, debt relief can help avoid long-term damage of filing for bankruptcy relief. Debt relief is a broad term that can refer to counseling, budgeting and negotiating with creditors. A successful debt relief plan can lower your costs and provide a buffer between you and bankruptcy.

Less Debt

A good debt relief program can lower your total amount of debt, which might keep you one step ahead of bankruptcy. The key to lower debt might be as simple as budgeting and credit counseling, which can identify how and where you spend money. Allocating more of your money to paying down your debt can help you reduce your debt more rapidly. If your debt relief program involves a debt management plan, you or the firm you hire may be able to negotiate a reduced balance with your creditors in exchange for larger payments. Either way, every dollar you can reduce your debt by pushes you farther away from bankruptcy.

Lower Interest Rates

If your debt relief plan can't reduce your balances, you may be able to convince your creditors to lower your interest rate. Many debtors could afford to pay off their debt if it didn't keep growing at double-digit rates every year. Getting a reprieve on your interest rates might be enough to help you stave off bankruptcy.

Protection From Creditors

A quality debt relief firm can work directly with your creditors and keep them off your back. Typically, creditors are quick to come after debtors who miss payments with letters, phone calls or lawsuits. If you or your debt relief firm can work out a negotiation with your creditors, you can make your payments in peace without being harassed by your creditors. Since a lawsuit is often the step that prompts debtors to file for bankruptcy protection, creating a workable arrangement with creditors can be crucial in avoiding bankruptcy. Be sure your creditor is willing to honor your arrangement if you are working with a debt relief firm.

Scams

The credit card debt relief industry is filled with scams and other pitfalls. Many companies offering to help you with debt relief charge substantial fees for their services, even if they claim to be nonprofit. Some will not forward any of your payments to your creditors without first taking out their fee, resulting in lower payments for creditors and possible lawsuits. The Federal Trade Commission recommends working with licensed nonprofit organizations that specialize in credit counseling and budget management. Legitimate debt management and settlement firms will disclose fees and methods and should be registered with the Better Business Bureau. However, there is no guarantee of debt relief success, even with legitimate firms.

 

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