Unpaid credit card bills can be a big problem when trying to legally improve your credit.
Not only do they hurt your credit scores, but you also have to deal with debt collection
companies and their sometime unfair debt collection practices.
Recently, a couple called us for a credit consultation. The husband had been unemployed for
about 2 years and the wife was self employed and still challenged with growing her business.
Needless to say, their income had dropped significantly and they accumulated several outstanding balances on about
5 credit cards accounts.
Their credit scores had also dropped drastically. The couple was considering filing bankruptcy
and wanted to know their options.
If you're in a similar situation and facing a lot of credit card debt and not sure
what to do, you should know there are basically 6 debt solutions (or some combination thereof)
available to you. The debt solutions are listed in order of the least impactful to most severe impact to your credit.
6 Debt Solutions for unpaid credit cards...
If you have a monthly budgeted surplus, develop a debt elimination plan. You can list your credit card bills in order of lowest balance by highest interest rate and pay off the credit card bills one at a time.
If you can sell off any assets (e.g. jewelry, cars, house, etc.) or borrow money from a relative or your retirement account, use the proceeds to contact your creditors and negotiate debt settlement agreements for each of the unpaid credit card bills. Many times credit card companies will accept a reduction of 10% to 50% to settle the debts.
Simply continue to not pay the credit card bills until you are able to accumulate enough money to negotiate debt settlement agreements for each creditor.
If you can qualify, enlist the help of a non-profit consumer credit counseling organization. Usually, you have a monthly surplus sufficient to pay off your outstanding credit card debt within 48 months. The consumer credit counseling organization will negotiate a debt management plan to pay your unpaid credit card bills. You will have to make monthly payments to them and they will pay your creditors in full. They usually negotiate away the interest and keep about 15% of the payments for their services.
Chapter 13 Bankruptcy reorganization plan. This debt solution allows you to develop a plan to pay your creditors, for the unpaid credit card bills, a percentage of the balance owed from money you have available after paying your reasonable living expenses. You may be able to get a plan approved to make payments for up to 5 years. At the end of the term of the reorganization plan, any remaining balance is usually discharged.
Chapter 7 Bankruptcy Liquidation. This is the debt solution of last resort. You will have to demonstrate that you qualify by meeting a "means test". If you qualify, you can usually elect to reaffirm your home mortgage and certain other liabilities, but you get to discharge your other debt obligations, including your unpaid credit card bills.