debt

Can the government settle credit card debt?

Steve BucciQuestionDear Debt Adviser,
If I have too much credit card debt, is the government credit card debt settlement program the way to go to reduce debt, or is it better to deal directly with the credit card companies to try and reduce the interest rate?
-- Valorie

AnswerDear Valorie,
Currently, no government credit card debt settlement programs exist. What does exist, however, is advertising by companies, some of which are debt settlement companies, trying their best to mislead you. Consumers who are in debt trouble do not have the option of government assistance to get out, just yet. Who knows what the next election may bring!

Allow me one aside regarding debt settlement. The for-profit, debt settlement industry has recently come under fire by the Federal Trade Commission. Some debt settlement companies charged large upfront fees and had a low success rate with actually settling accounts. The FTC has adopted new regulations for debt settlers in response to these issues. The new rules will go into full effect Oct. 27. In addition to improved disclosures, they require that fees for debt relief services may not be collected until:

  • The debt relief service successfully renegotiates, settles, reduces or otherwise changes the terms of at least one of the consumer's debts.
  • There is a written settlement agreement, debt management plan, or other agreement between the consumer and the creditor, and the consumer has agreed to it.
  • And, the consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider.

Visit the Federal Trade Commission's website for more details on this ruling.

Now, back to my advice for you. My answer on dealing directly with credit card companies depends in large part on how many creditors you owe rather than how much you owe. My experience is that if you have only a few creditors, you are more likely to be able to come to terms than those who have many creditors. A creditor will want as large a payment as possible. You will be in a negotiating contest with people who do this every day. You might successfully negotiate with one or two lenders, but once you get beyond one or two, the odds are against you being successful in the long run.

So, if you have up to three or so bills and have not already tried communicating with your creditors, I would recommend that you start there. Ask your bank if it has hardship programs available to help consumers get back on track with credit card debt. Many do. The downside of many of these programs is that they are short term, usually six months or so.

If you have more than a few creditors, if their offers are not enough to allow you to make ends meet or if you just don't want to contact your creditors, you might consider seeking help from a nonprofit credit counseling agency. Your counselor will thoroughly review your finances with you and determine what course of action is in your best interest. During the process, many people come to realize that they can make adjustments in areas of their monthly budgets. By making some simple spending adjustments, some find that they are able to handle their credit card debt without outside assistance.

Others, and this may include you, may benefit from a debt management plan, or DMP. Consumers enrolled in a debt management plan receive assistance with lower interest rates and waived fees from their creditors. And the counseling agency does all the negotiating for you. The typical payback period on a debt management plan is four to five years or less. Consumers on a debt management plan can cancel at any time for any reason. For example, if your financial situation becomes worse and you cannot continue to make monthly payments or if your situation gets better and you wish to pay on your own, you can stop at any time without a penalty from the agency.

Get weekly advice on slashing debt and debt consolidation tips! Subscribe to Credit Card News.

Ask the adviser

To ask a question of the Debt Adviser, go to the "Ask the Experts" page and select "Debt" as the topic. Read more Debt Adviser columns and more stories about debt management.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy.  Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "debt"

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CARDS WEEKLY NEWSLETTER
Credit cards on a table

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

Debt Adviser

How do I recover from a car repo?

Dear Debt Adviser, This one's a doozy: Back in 2009, during the recession, I lost my job, my vehicle was repossessed, and it sold for more than the loan amount. The repo is now on my credit report, and my score is in the... Read more

advertisement
Partner Center
advertisement

Connect with us