Credit Card Debt Reduction By Dermot Farrell Copyright © 2012 by Mindianway


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									                                By Dermot Farrell

                                Copyright © 2012

The Secret Behind Credit Card Debt – Copyright 2012 –
Credit card debt reduction is a popular debt reduction strategy which requires that the credit
card debtor to settle their debts in a one-off payment, made in a short period of time,
usually within the period of a year. Many credit card debtors find that the credit card debt
reduction process works really well and produces a substantial level of debt elimination,
often in excess of 50% of the original debt principal.

The question which you need to ask yourself, if you are considering credit card debt
reduction, is whether or not it is the most effective debt reduction strategy for you?

  How Does the Credit Card Debt Reduction Process Work?
With credit card debt reduction, the credit card debtor stops paying their credit cards.
Instead they sign up to a debt settlement organization and make monthly payments into a
bank account which has been set aside for this purpose. The debtor continues to pay into
this account for a few months. Usually they will sell off some assets in an effort to boost this
account. This is because the aim is to get a sum together to the order of approximately 50%
of the original debt.

Once the fund approaches the 50% mark, the debt settlement company then begins the
negotiation process with the credit card companies and attempts to reduce the debt. When
agreement has been reached, the debtor makes a one off settlement to each of their
outstanding credit card companies.

          Let’s Compare Credit Card Debt Reduction
             with Credit Card Debt Consolidation
By way of example, a debtor who signs up to a credit card debt consolidation program, and
who has a debt of say $20,000 at an annual interest rate of 18% , and who is paying back
minimum payments of $400 per month, will take about 8 years to repay the debt.

If this debtor were to sign up to a credit card debt consolidation plan, the interest rate would
be reduced to a smaller figure such as 12%. So that while still paying only $400 per month,
they will repay this debt in a little less than six years. While this does not sound amazing, it is
still a saving of 2 years in duration. Also from an economic perspective, it will save the debtor
an enormous $9381 in interest payments.

However, when compared with credit card debt reduction, the savings with credit card debt
reduction are quite staggering. if the debtor only manages to save 40% on their debt, it will
mean that they only pay back $12,000 (60% of the debt principal), in just over 1 year.
Compare that to just 6 years in order to payout a total of $28,000 on the credit card debt
consolidation plan. This is 5 years reduction in timescale and $16,000 less interest.

   The Secret Behind Credit Card Debt – Copyright 2012 –
Not bad. So far, so good. But…

Are there any Downsides of a Credit Card Debt Reduction Program?

Listed below are the downsides which go along with credit card debt reduction:

                          Credit score downgraded

                          Court cases Pending

                          Possible tax liability

Credit score downgraded:
When you go through the credit card debt reduction process, it will result in a downgrading
of your credit score. Although this is not great, you have to weigh up the effects of a poor
credit rating for a few years versus overwhelming debt crisis.

Court cases pending:
Some of your creditors may decide to take you to court, although if you are taken to court,
the court can only force you pay back a small amount of the outstanding debt each month.
Also, because credit card debt is unsecured, unlike house and auto loans, no one can
repossess your property. Therefore, court cases are not so bad after all.

Possible tax liability:
Any monies which are reduced from the debt principal are liable to taxation, unless you can
prove yourself as been destitute. However, this can only be proven when you file for
bankruptcy. So prior to signing up to a credit card debt reduction program, do your math
and add in potential taxes so as to figure out whether or not credit card debt reduction will
work well for you.

   Wow, some Negative Points There… Is it even Worth My
    While even Considering Credit Card Debt Reduction?
To know whether or not credit card debt reduction is the right strategy for you, then you
have to ask yourself some in-depth questions. It is necessary that you understand that credit
card debt reduction only works well for credit card debtors who have large debts.
Credit card debt reduction is an ideal debt relief strategy, for debtors whose debts are so
high that they don’t know what to do about them, and who are considering bankruptcy as
their last port of call.

When compared to bankruptcy, the downsides of credit card debt reduction are not bad at
all. Because if we look at bankruptcy, it obliterates your credit rating for a very long period of
time (Anywhere from 8 to 10 years, depending upon the type of bankruptcy), and usually it
results in the fire sale of most or even all of your assets.

   The Secret Behind Credit Card Debt – Copyright 2012 –
Most debtors, who are contemplating bankruptcy, are actually better off on a credit card
debt reduction program instead, because it is all over in one year, and unlike bankruptcy,
there are no official records of your debt problems apart from a poor credit score.

As a word of warning though, it must also be remembered that with credit card debt
reduction the credit card debtor has to make a one-off debt settlement, usually in a
timeframe of approximately one year. Obviously not all debtors would be capable of coming
up with such a big settlement so quickly, in which case bankruptcy might be a better option.

 Which is the Best Credit Card debt Reduction Strategy to use?
Trying to work out which is the best credit card debt reduction strategy is a big task. While
we can briefly outline the pros and cons of each debt reduction method, it is difficult to
outline which strategy is the correct one for every individual debtor.

This is why it is necessary for you to ask yourself some questions. This will help you to
get to understand the dynamics of your particular situation, as this is the only way to find the
best credit card debt reduction solution, which will work well for you.

Our recommendation then to you, when considering credit card debt reduction, is to take
the time out to understand your particular circumstances, and then do some research into
the various credit card debt reduction strategies, which are out there.

Because one thing is certain, there is a debt reduction strategy which will fit well with
your needs, and perhaps credit card debt reduction may well be just that strategy.

  The Secret Behind Credit Card Debt – Copyright 2012 –

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