Credit card debt solutions often lead to more problems

On Behalf of | Mar 20, 2023 | Bankruptcy |

There are many quick fixes for credit card debt available. Some companies even advertise their services on the radio and on local billboards. There are debt settlement companies that claim they can talk a credit card company into accepting only a fraction of how much the person really owes. There are debt consolidation lenders who will provide a personal loan to someone struggling with credit cards so that they can pay off their revolving lines of credit and only need to make one payment each month.

There are even balance transfer offers provided by many credit card companies that want someone who owes money to another credit card company to move that obligation. The problem with these services is that they often don’t fix the problem at hand and may even leave people with a higher debt load than they were carrying when they started researching debt management solutions.

Debt solutions often come with more debt

It is relatively obvious to the person transferring a credit card balance from one company to another that they still have credit card debt. However, they may feel more confident about repaying that debt because they think they have a lower interest rate thanks to the offer.

Many times, introductory rates only apply if someone pays off what they owe in a certain amount of time. In addition to being hit with a year or more of interest at once, the person transferring a credit card balance will usually have to pay a fee.

Both credit card consolidation and settlement services usually offer a loan so that people have the money to pay off their credit cards. The terms for those loans may not actually be much better than the terms provided by credit card companies.

In the case of credit card settlement, not only were there still be major debts for someone to repay, but each settled creditor can report the fact that the payment wasn’t made in full to the credit bureaus, potentially dragging someone’s score down by a significant amount.

Bankruptcy is actually a solution

Unlike the often-for-profit debt solutions offered by financial companies, bankruptcy actually gets rid of someone’s debt instead of just switching the creditors that the borrower has to pay. It will also replace multiple past-due and overextended financial accounts with one bankruptcy discharge on their credit report, which will potentially have less of an impact after a few years than numerous delinquent accounts that may remain unresolved.

Those who are struggling with credit card debt often have underlying financial issues that they need to address, like a recent job loss or drop in household income. Bankruptcy proceedings often help people prevent major financial losses after a period of temporary setbacks or hardship. Learning more about personal bankruptcy and other debt solutions can help people make the best choice when their obligations outweigh their ability to pay each month.