Credit Card Debt FAQ

Credit Card Debt FAQ

Written by Caitlin Wood
Last Updated September 14, 2015

Becoming informed is essential to ensuring that you make the right decisions when it comes to managing your credit card debt. Fortunately, there is a wealth of information out there, meaning that you should be able to find the answers to all of your questions so long as you are willing to put in the time and effort. To make things just a bit easier for you we’ve compiled a list of the most frequently asked questions about credit card debt and then answered for you, keep reading for the answers you need.

What is Debt Relief?

Debt relief is the reorganization of debt so that it becomes easier for the debtor to manage. For example, if you and your lender agree to change the terms of your loan so that you can continue making your payments in spite of your financial problems, that is debt relief. Similarly, if you consolidate all of your existing debt into a single loan for ease of management, that is debt relief as well.

How Can Debt Relief Affect Your Credit Score?

The sheer range of options collected under the name of debt relief makes it difficult to say how it can affect your credit score. For example, if you choose to discharge your debt by declaring bankruptcy, you can expect your credit score to take a serious hit. Furthermore, you can expect your bankruptcy to factor into your credit score for 7 years or more. In contrast, you can cushion the blow to your credit score by consolidating (learn more about debt consolidation here) all of your existing debt into a single loan, particularly if you manage to pay it off within a short period of time. The sheer range of options is the reason that you should speak with a financial expert about debt relief before making a final decision.

Should You Seek Debt Relief for Your Credit Card Debt?

If you find that your credit card debt is becoming too much for your finances to bear, you should give some serious thought to seeking debt relief. Generally speaking, you should seek debt relief if your debt situation is becoming worse even while you are having problems making your payments. For example, if you are taking out short-term loans to cover your credit card debt as well as the rest of your monthly bills, you should probably seek debt relief.

How Can Your Credit Card Debt Affect Your Credit Score?

Your credit card debt can have a significant impact on your credit score because your credit history is one of the biggest factors in calculating said metric. If you make your payments on time, you can expect your credit score to rise. In contrast, if you fail to make even a single payment on time, you can expect your credit score to fall with shocking speed. This is problematic because a falling credit score can make it harder and more expensive for you to borrow in the future.

What Should You Do if You Fall Behind on Your Credit Card Debt Payments?

Generally speaking, if you find that you are falling behind your payments, you should contact your creditors as soon as possible. Even if you cannot come to some sort of short-term arrangement, you can still save yourself the trouble of being hounded by them about your late payment. Once you have done so, you should make sure to contact a financial expert with the expertise and experience needed to tell you about your rights as a borrower while also explaining your options to you in an easy-to-understand manner. With credit card debt, as with so many other financial issues, information is power.

Should You Use a Secured Loan to Cover Your Credit Card Debt?

Secured loans are loans backed by some sort of collateral. For example, car title loans are backed by cars, whereas home equity loans are backed by the borrower’s equity in their home. Since the use of collateral reduces the risk for the lender, secured loans are more accessible than their unsecured counterparts, which can make them tempting for borrowers who are finding it hard to make their payments. However, secured loans should always be used with extreme caution because there is a real risk of the borrowers losing whatever collateral they put up, should their debts become unmanageable for them.

Should You Prioritize Your Credit Card Debt Over the Rest of Your Debt?

When you have extra money in your budget, you should always consider using it to pay off as much of your debt as possible. Under normal circumstances, you should prioritize outstanding balances with the highest interest rates, particularly if they have minimum payments that can vary from month to month. For example, you should almost always prioritize your credit card debt over fixed payment loans if you are trying to reduce the size of your payments.

Ask For Help Before it’s too Late.

If you still have any unanswered questions about your credit card debt, you should not hesitate to contact us at your earliest convenience. The sooner you get in touch with someone with the financial expertise that you need the sooner you can get started on solving your credit card debt problems and start living the debt free life you’ve always wanted.

Looking For More Information?

If you’re in need of more information about credit card debt or have some unanswered questions about debt relief check out these articles.

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Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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