Credit card debt is something you don’t wanna take lightly. Late fees and increased interest rates can be a real headache. As you miss paying consecutively on billing cycles, you start making it harder for yourself to pay that debt.
It is sort of ironic, the deterrence that credit card companies use to encourage you to pay, actually make it more difficult to pay back the debt but this is how it is and you’d want to avoid it by all means. In any case, even if you’re trapped in some pretty nasty credit card debt, there are ways to pay it off or get rid of some of it or all of it depending on the way you choose. These include debt settlement, debt consolidation and bankruptcy etc. Not all of these ways are pleasant, though.
What Happens When You Stop Paying Your Credit Card Debt?
Several things happen in a chronological order when you stop paying your credit card debt. When you miss the first billing cycle, you accrue a higher interest rate as well as a late fee along with the original debt you have to pay. Missing paying this amount in the next billing cycle causes the imposition of more late fees and higher interests.
If you keep missing to pay all this debt for 180 days or six months, your account would default and your creditor would in all certainty, shut your credit card account while reporting your credit debt to the three credit bureaus. This is a terribly bad news for your credit score and if you’d want to enjoy credit in the future, you’d have to start building your credit from scratch with a secured credit card in all practical terms because unsecured credit cards will be pretty far out of reach for someone who defaulted on debt.
What happens next in all likelihood is that your creditor sells your debt to a debt collection agency at far less than its face-value. Debt collectors have the means and resources dedicated to recovering money. The collectors could then file a court case and most likely win because of your weak case. In most cases, the court orders garnishment of your wages or your bank account. In either case, debt collectors would try to win the case against you, and then try and recover the debt through garnishment. All of this could take place in 9 to 14 months.
How to Protect Against Garnishment?
However, let me make it clear that discussed above is a theoretical scenario and practically very hard to pull-off for debt collectors. First off, some states, i.e North Carolina, South Carolina, Pennsylvania and Texas do not even allow wage garnishment. Others that do, do not allow garnishment of particular incomes like social security. You can read more about wage-garnishment here.
As far as levy on your bank account is concerned, simply transferring your savings or income in Tenants by Association account jointly owned by you and your spouse or transferring it legally to an offshore bank account in a country that is not a party to Common Reporting Standards (CRS) render garnishment inconsequential.
How to Get Rid of Your Credit Card Debt?
1. Debt Settlement
If you’ve defaulted or nearing default on your credit card account but you can pay some of it, you can negotiate with your creditor to decrease your debt to an amount you’re able to pay but you’d have to make sure this amount is more than what the creditor would get if they sold your debt to a debt collection agency.
Normally, a debt might sell for less than half its face-value, you just have to make sure you can make a better deal than this. An offer of paying 50% of debt might do the trick. Start with 40-50% to create a bargaining ground for yourself. Your creditor might accept the offer. You can always hire a professional negotiation firm to negotiate on your behalf for more effective outcomes.
2. Debt Consolidation
Debt Consolidation basically refers to getting all different types of your debts with different interest rates consolidated into one debt with one interest rate. You should opt for debt consolidation if you owe multiple debts. Its advantage is that you ultimately pay lesser than what you’d pay in interest rates in multiple debts. It makes it easier for you to pay off your debt in a relatively efficient manner.
Bankruptcy is the most unpleasant ways of getting rid of or relief from credit card debt because it causes your credit score to hit the rock-bottom. You will have to start anew to build credit after a bankruptcy, especially a chapter-7 one.
If you can’t pay your credit card debt at all, you should probably go for chapter-7 bankruptcy. A chapter-7 discharges your debts and the creditors are likely to write it off as a loss. Your essential assets would be safe (i.e your primary residence, social security, etc.) but there’s a chance that your non-essential non-exempt assets would be seized and auctioned-off to cover for your debt but the chances of that occuring are slim.
On the other hand, if you can pay your credit card debt but you need an extended period of time, you can opt for chapter-13 bankruptcy, where the court would extend the period in which you can pay your credit card debt to 3 or 5 years. Any debt that remains after the period, is discharged.
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