If you are battling a mountain of credit card debt, you may be tempted to try working it out with the lender.
You may try asking for them to remove late fees or high interest rates.
We would never advise against giving this a shot, but it's rarely as effective as one would hope.
The fact is, Los Angeles Chapter 7 Bankruptcy Lawyer Vincent Howard of HOWARD LAW knows that in some cases, it's simply better to cut your losses, particularly if you have other debt that is continuing to pile up as well.
A chapter 7 bankruptcy allows you to walk away debt-free. If you can do this before you drain your savings, you will find yourself in a much better place financially, with the tools to move forward.
The credit card companies may offer you one of three possible options for settling or repaying your debt, but they are likely to affect your credit as well. Plus, you may not have the resources to make it happen anyway.
These options are:
- A lump sum settlement;
- A workout arrangement;
- A forbearance program.
To give you a better idea of what each would entail, let's examine them one-by-one:
A lump sum settlement is one in which you would pay off a large portion of the debt all at once and request that the bank accept this as the full amount, forgiving the remaining balance. The first problem is that most people simply don't have access to this kind of cash. Think about it: If they did, they likely would not have relied so heavily on credit in the first place. But secondly, this option is likely to impact your credit score the same way a charge-off would. These are essentially losses that the bank writes off, but it still counts against you as unpaid. And finally, negotiating terms that actually work in your favor can be tough without the help of an attorney.
The second option is a workout arrangement. This is where the bank will lower your interest rate or even eliminate and sometimes will stop tacking on late fees or overdraft charges. You may be able to work this out to be temporary or until you've paid off the whole balance. Your line of credit will probably be cut, and your credit score will probably take a hit. But more importantly, this type of deal is highly unlikely. Banks make their money by charging interest, late fees and overdraft fees. Most financial institutions are loathe to slash their bottom line for any reason.
And finally, you have a forbearance program. This is an option that will give you maybe a month or so to catch up. Essentially, it's breathing room. This might be a good option - if the bank will grant it - if you aren't already extremely behind. In that case, a month or two off isn't likely to do you much good anyway.
With regard to each of these potential solutions, what you don't want is to be putting off the inevitable. If you can make any of these work for you and put you back on solid financial footing: great. But the fact is, these solutions may only be temporary solutions to a larger debt problem.
If that's the case, it may be time to have a serious evaluation of your finances, and what your options are moving forward.
Los Angeles Bankruptcy Attorney Vincent Howard at HOWARD LAW can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.
Credit card debt negotiation in 3 (not) easy steps, September 2012, By Dana Dratch, CreditCards.com
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