Television and Internet advertisements purporting to offer a way to legally eliminate credit card debt are tantalizing to the debtor who's overwhelmed by creditors' monthly statements. Such services may purport to wipe out your bills while allowing you to keep your property. Other claims may make assurances that you can roll credit card debt into a single payment without having to borrow money. But beware, advises the Federal Trade Commission: Advertisements such as these most frequently offer you only one option---that of declaring bankruptcy. Legally eliminating credit card debt without resorting to further sullying your credit (bankruptcy is reflected in your credit report for 10 years) isn't simple, quick or even easy---but it can be done for those who approach paying off debt with diligence.
Step 1
Make a budget, advises the FTC. This is the first and possibly the most crucial aspect of taking responsibility for your credit card debt. Tally up how much income you have coming in each month. Then make a list of your fixed expenses, such as rent/mortgage, car payments and car and health insurance premiums. Now draft a list of variable expenses, such as those for clothing and entertainment. Putting it all down on paper gives you a good idea of your spending patterns and what's really left over after all the bills are paid. The FTC notes that devising a budget is important to make sure that you can pay for all of your needs, such as housing, food, health care and insurance.
Step 2
Make contact with your credit card companies if you're having financial difficulties---such as if you've just lost your job or are strapped due to an unplanned medical emergency. Your credit card companies may be able to work out a plan that makes minimum payments more affordable. But whatever you do, don't tarry---once your accounts have been handed over to a debt collector, a credit card company has given up on receiving payment from you, notes the FTC.
Step 3
Consult with a nonprofit credit counseling service with a good reputation. This step is helpful when you've found that you can't stay on a budget or manage your finances. The FTC points out that a reputable service can help you devise a plan to help you deal with credit card debt---as well as help you with all matters of personal finance. Most initial sessions take about an hour and offer one or two additional counseling sessions.
Step 4
Consider a debt management plan (DMP). If you've incurred too much credit card debt that you can't pay back, a credit counseling agency might suggest a DMP as one option, states the FTC. If you choose to go with a DMP, you will deposit a certain amount of money with a credit counseling organization, which uses this to pay off your credit card debts and other unpaid expenses in accordance with a plan developed between you, your credit counselor and the credit card company. The FTC notes that in some cases, a credit card company may even lower your interest and waive certain fees. It may take you 48 months or even longer to repay your credit card debt through a DMP---as long as you make your payments on time.
Step 5
Look into debt consolidation. It may be possible for you to legally eliminate credit card debt by taking out a loan when you refinance your home or use the equity that you've built in your home as a line of credit. But the FTC warns that such loans do consider your home as collateral, and if you default you could face foreclosure. Also, you will have to pay interest and other fees when you take out such a loan.
Step 6
Negotiate a settlement with your credit card companies. The FTC notes that some creditors may accept between 10 percent and 50 percent of the total balance you owe. However, be wary of debt negotiation firms---these companies may purport that a settlement will not affect your credit report and credit rating, but the FTC notes that this is untrue. Additionally, debt negotiation businesses charge substantial fees. The National Foundation for Credit Counseling points out that this is something you can do yourself by contacting your creditors directly and negotiating a settlement---for free.
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