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MoneyWatch: Managing Your Money
By Joshua Rodriguez
Edited By Angelica Leicht
/ CBS News
If you have credit card debt, you're not alone. According to the Federal Reserve Bank of New York, Americans have about $1.08 billion in combined credit card debt — which is likely a significant driver in the $17.29 trillion in total household debt nationwide.
Unfortunately, credit card debt can be overwhelming. That's especially true considering today's high interest rate environment. So, it would not be surprising if you're on the hunt for debt relief solutions.
But who exactly qualifies for debt relief? Is there a certain credit score and amount of debt you need to meet before you can tap into today's best debt relief options?
Learn about your debt relief options today.
Who qualifies for debt relief?
Everyone qualifies for some form of debt relief, but you may or may not qualify for the specific types of relief you're looking for. For example, anyone can create a structured payment plan and achieve debt freedom faster. However, if you want to take advantage of a lending product like a debt consolidation loan, you'll need to meet the lender's requirements to do so. So, whether or not you qualify for debt relief is dependent on the type of debt relief you're talking about.
Types of debt relief
There are several types of debt relief available. Some of the most common types — and who qualifies for them — are outlined below:
Structured payment methods
Getting creative with your payments can save you quite a bit of money. Two common payment plans to follow are known as the avalanche and snowball methods. Here's how they work:
- The debt avalanche: This method involves making minimum payments on all but one of your debts: the one with the highest interest rate. You should allocate all extra funds to the highest-interest debt. Once your highest interest rate debt is paid off, you'll allocate your excess funds to the next highest-rate credit card you have. Continue doing so until you're debt-free.
- The debt snowball: The debt snowball method works like the debt avalanche method. However, instead of focusing your efforts on your highest interest rate, you'll focus on your lowest balance. The idea is to pay off the lower balances faster, giving yourself a confidence boost. In doing so, you'll also free up excess cash to pay off larger debts faster.
Who qualifies for structured payment plans?
Anyone can choose to follow a payment plan to speed up their path to debt freedom.
Tap into the debt relief you need now.
Debt consolidation
Debt consolidation is the process of consolidating multiple debts into one account. The new account typically comes with a lower interest rate and fixed minimum payment, resulting in significant savings in terms of debt payoff time and interest. There are a few different debt consolidation options to consider:
- Debt consolidation loans: These are personal loans designed to help consumers get out of debt. They usually come with lower interest rates than credit cards alongside fixed payment plans, giving you a clear path to payoff.
- Home equity loans: Home equity loans typically come with highly competitive interest rates. You can use these loans to consolidate high-interest credit card debt, which usually cuts down interest dramatically.
Who qualifies for debt consolidation?
- Debt consolidation loans: You'll typically need a credit score in the mid-600s to qualify for a debt consolidation loan with a reasonable interest rate. The best rates and terms are generally reserved for the most well-qualified borrowers.
- Home equity loans: You'll typically need at least 20% equity in your home, a credit score in the mid-600s and proof that you can pay the loan back to qualify.
Debt settlement
Debt settlement starts with experts asking you questions about your debts and your financial situation. They use this information to create a payment plan that is generally both effective and affordable.
Once you have your payment plan, you make payments to the debt settlement company, which stores them for you in a special-purpose savings account. When you've saved enough money, the settlement company negotiates with your lenders in hopes of reducing the principal balance you owe.
Though this option can result in significant savings, there is no guarantee that your lenders will accept the settlement offers. If they do, you'll likely need to pay income tax on any forgiven debt. Moreover, the process is known to negatively impact credit scores.
Who qualifies for debt settlement?
Anyone who is having a hard time making their credit card payments may qualify for debt settlement programs. However, some companies require borrowers to have a specific amount of debt — like $10,000 — to qualify for their services.
The bottom line
If you're tired of dealing with credit card debt, you can typically qualify for some form of debt relief. After all, even if you don't qualify for debt consolidation or a home equity loan, there's likely nothing stopping you from working with debt consolidation programs or debt settlement companies. Moreover, anyone can create and stick to a payment plan to save time and money on credit card debt.
This story has been updated to clarify the difference between debt management and debt consolidation programs.
