As we know, the COVID-19 pandemic has resulted in financial setbacks such as unexpected bills, medical problems, or even losing your income, which can lead to you falling behind on credit card payments. There are several ways you can manage your credit card debt, but in order to make the most efficient and smart decision for your situation, it’s important that you know your options. Knowledge is your most valuable asset, and you have to make sure you’re expanding on that.
Here are four options to consider when financing credit card debt, presented by Capital One.
4 Ways to Finance Your Credit Card Debt
Option #1 Reach out to your Lender
Before you begin, start by reaching out to your lenders to see if they are willing to work with you and your situation. Some creditors may be willing to waive certain fees, reduce your interest rate, or even change your monthly due date to better match your financial situation so you’re able to pay back your debt.
- Learn more about CreditWiseⓇ from Capital OneⓇ, a free tool that allows everyone—Capital One customer or not—to monitor your credit (BTW… it won’t hurt your score).
Option #2 Credit Counseling
Credit card counseling services are usually provided by non-profit organizations. According to the Consumer Financial Protection Bureau (CFPB), credit counselors “can advise you on your money and debts, help you with a budget, and offer money management workshops.” Credit counselors can:
- Advise you on managing your money and debt
- Help you develop a personalized budget
- Help you obtain a copy of your credit scores and report
- Organize a debt management plan to help you pay down your debts
Option #3 Create a Debt Management Plan
Being that a credit counselor can help you create a debt management plan, it’s important to use their services when trying to finance your credit card debt. How does a debt management plan work? We’re glad you asked!
How it works: According to CFPB,
- “You make a single payment to the credit counseling organization each month,” and they send monthly payments to your creditors on your behalf.
- Most of the time, when you’re enrolled in a plan such as this one, your “creditors will not pursue collection efforts or charge late fees.”
It’s important to also keep in mind:
- Credit counselors usually do not negotiate any reduction in the amounts you owe.
- Even if the creditor works for a non-profit organization, they may still charge fees for their services.
- Make sure your credit counselor is both credible, reputable and certified as well as someone you trust to manage your payments on your behalf.
Option #4 Debt Settlement
In comparison to credit counselors, debt settlement companies tend to be for-profit companies that charge a fee depending on the services they are providing.
According to the Federal Trade Commission (FTC), debt settlement companies:
- Offer to “negotiate with your creditors to allow you to pay a ‘settlement’ to resolve your debt—a lump sum that is less than the full amount that you owe.”
- These programs will typically ask you to “set aside a specific amount of money every month in savings… and transfer this amount every month into an escrow-like account to accumulate enough savings to pay off any settlement.”
One thing to always keep in mind when it comes to options for financing your credit card debt is to make sure you’re knowledgeable before making the best decision for your situation. To make the most well-informed decision, do your research, ask questions, write down every pro and con, so you can ultimately and confidently decide what’s best for you!
The views expressed in this article are not necessarily that of Capital One. Original story published here.