Credit card debt, regardless of how it is accumulated, is considered bad debt. Student loans, which are low interest, and increase your earning power, are considered good debts. Mortgages are also considered good debt, once again due to the low interest and the fact that property generally appreciates in value.

Credit card debt is one of the largest consumer issues in the United States today, with millions of people racking up bills each year. The total amount of American credit card debt stood is well over the two trillion dollar mark and doesn't figure to come down any time soon. With such an overwhelming amount of bad consumer debt on the books, an entirely new industry has sprung up to deal with the problem. People now have credit card debt solutions to help them get out of the hole that they might find themselves in. Things like credit card debt settlement, counseling, and consolidation are routinely thrown around as ideas for those with mounting bills. But what are these things all about?

Issues surrounding credit card debt settlement

Settle is one of the credit card debt solutions that makes sense for some, but does not work for everyone. It can help individuals reduce credit card debt and eliminate their accounts all at once. With the credit card laws currently on the books, lenders are required to offer settlement packages to customers with highly delinquent accounts. Different card providers will offer varying deals, with some offering as much as a 75% discount for clients with substantial, old debt.

This can be an excellent way to pay credit card debt for people who have allowed their accounts to back up over a year or more. For someone who owes $5,000, the settlement offer will routinely require them to pay only around $2,000 to take care of it completely. This gets creditors off of their back and helps them begin the process of repairing their credit. The downside to this is that the settlement is reflected on a person's credit report and negatively impacts their credit score. A note will accompany the account, informing future creditors that the balance was settled for less than what was owed originally.

What about settlement companies?

Those in need of credit card debt help have to be careful who they trust through the process. There are plenty of companies out there claiming to help consumers, but they offer bad deals. There are settlement companies designed to negotiate with credits on behalf of the borrower. For those who lack the skills to write a settlement letter or put up a strong face in settlement negotiations, these companies can be useful. Settling a debt often requires give and take. One side puts forth and offer and the other comes back with a counter-offer. A settlement company will often be able to earn a lower final amount for clients, but it will come at a cost.

Credit card consolidation programs

Another way to handle credit card debt is through consolidation companies. These are firms that offer new loans at lower rates or longer terms. The idea is to help people who are in over their heads with their current bills. A consolidation company will pay off the existing credit cards, providing consumers with a single loan to pay off over the next few years.

So why would one enter into a program like this? There are plenty of reasons and consolidation can work for a wide range of people. This form of credit card debt help provides more structure and organization. Instead of having to pay down many different cards with different rates, dates, and payment amounts, debtors will worry about a single loan. That loan will often come at a lower rate, which helps to save money. Likewise, the loan term can be extended to provide more relief in the short-term. The downside to extending the loan term is that more interest will be paid to the consolidation company over the life of the loan.

Consolidation coupled with credit card counseling

Debt help companies have become much more responsible over the years and they now focus on helping consumers fix their issues. Instead of just throwing a brand new loan at a consumer who has had trouble in the past, many consolidation firms will help clients with credit card counseling. In this type of program, a counselor will meet with consumers on an individual basis, helping them assess their own shortcomings. From there, they work as a team to come up with a solution that will work for the future.

In some cases, people are getting into credit card trouble because they are taking out too much credit compared to their income. Others are unorganized and run into big late fees. Counseling helps individuals get to the root of those issues and provides them with a clear plan for success in the future. This is one of the best possible ways for those in credit card debt to overcome their problems. By having an outside voice provide some clarity and some fresh ideas, consolidation companies are able to provide a nice service to those in debt.

Overall, credit card debt is a major problem and there are no quick fixes. Being in over one's head in debt will damage the credit report and add a major financial hurdle. Some of the debt help programs do provide excellent resources for those with unique situations, however.

Published on July 12, 2006