If you’re faced with credit card debt, one possible alternative is reach a settlement with the credit card company. This can be done at an individual level. It is not something that requires you to hire a professional. Hiring a professional in most cases is an unnecessary expense.
I do not have personal experience in this area, so my advice here is from discussion with others that have personally settled credit card debts.
The first thing you must remember when you begin to craft a strategy is that you’re going to need to have some form of cash on hand. Your expectations need to be reasonable. It’s not reasonable to assume that the credit card company is going to simply forgive all your debt. On the other hand, it’s important to understand that credit card company wants to get out of a debt they are not collecting on. Therefore, they will be willing to negotiate and be somewhat flexible.
The bottom line is that if you have resources on hand, negotiating with a credit card company is a worth while avenue. Start with the money you actually owe. The interest earned on the debt is where the greatest flexibility is likely to be found.
If you happen to arrive at a settlement agreement, then it is vital that you remember that any debt a credit card company writes off will have a tax consequence in the tax year the settlement occurs. Depending on the amount of debt written off, you could have a very large tax obligation to Uncle Sam. This is crucial to note, since you do not want to go from a situation where you’re in debt to a credit card company to being in debt to the Federal government.
Once you start to get back on your financial feet, savings will be your first focus. The most important thing to keep in mind about saving is to just start doing it! Get into the habit of putting your money to the side. Once it’s part of your routine, it will become easier and easier. To save, a regular savings account will do.
Depending on your situation, you may want to focus your savings strategy around retirement accounts. These accounts whether it’s an IRA, 401k, 403b or another type of account can provide pre or post-tax savings. Keep in mind, having at least six months of savings in a liquid account (checking or regular savings) is a smart fiscal strategy. This money will enable you to much better weather fiscal emergencies that may occurring throughout your life. Remember, you want to be in control of your life, and having money to draw from in bad times is a very strong tool that will strengthen your control.
The takeaway from this series is that you must learn to control your spending habits. We live in a world where unlimited wants face limited resources. You must learn to control your desires. Whether that means developing a budget or simply practicing saying ‘no’, the goal is to slow the flow of money out the door. Once you cure the sins of the past (debt) and establish good spending habits, you can shift towards focusing on how your savings will enable you to reach your future goals.
Financial freedom is in your grasp.