How to Terminate Credit Card Debt without Bankruptcy

If you are approaching bankruptcy due to your current debts, aim to terminate credit card debt in order to avoid the negative consequences of bankruptcy. Many credit card lenders are willing to negotiate with you to reduce the amount you owe, prior to a bankruptcy case. Credit card companies often receive very little in a bankruptcy case; this form of debt is often unsecured and subordinate to other debts. By pursuing negotiations on your credit card debt, you can avoid bankruptcy all together.

Remove Unlawful Debts

Debts past the statute of limitations in your state are no longer legally enforceable. In most states, this limit is between three and six years. Only three states, Montana, Wyoming and Iowa, have statutes of limitations that exceed six years. Start by filing a complaint by mail for any debt that should have been removed because it is past the statute. 

Remove Unlawful Fees

Next, determine whether the fees charged by your credit card company exceed state regulated maximums. Each state enforces a maximum interest rate that can be charged by a credit card lender. Even if your lender initially quoted an interest rate under this maximum, the accumulation of fees over time may exceed your state maximum. Further, as of 2007, creditors are no longer permitted to raise fees on existing credit card debts. Notify you lender of any violations of this regulation and look to have your principal owed sum reduced.

Discuss Settlement

Once you have reduced the amount you owe, you now face the final sum you will owe to the lender. In most cases, you know you cannot afford to pay this sum outright. However, you may be able to settle for a lower cost. Many creditors will permit you to settle by paying only principal debt and not interest and fees. You may also be able to workout a payment plan that is within your budget. The payment plan should offer payments high enough to permit you to pay off the debt quickly but low enough to be affordable on your current budget.

Take a New Loan

If you cannot afford a settlement out of pocket, consider taking a settlement loan. This is risky because you are not actually reducing the amount you owe, and settlement loans have interest. However, by taking a settlement loan, you can close your credit card debt finally and owe only the settlement lender. This option allows you to consolidate debts from many creditors into one settlement loan. If the settlement loan's interest rate is lower than the interest rates on your current debt, you will end up saving money in the long run. 

Legal Rights

You have legal rights when attempting to settle debt, but not all creditors will observe these rights. In order to protect yourself, save copies of all correspondence between you, the lender and any legal organization. You may need these documents in the future if you do end up entering bankruptcy or otherwise attempt to settle the debt in court. 

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