How Can I Find Government Credit Card Debt Relief Programs?

You may have seen ads on television saying “you now have the right” to settle your credit card debt. Or they may tout a “new government program” to help with credit card debt. Government debt relief ads like these are misleading and, in some cases, could even be fraudulent.

The government won't cancel your credit card debt. And you have always had the right to negotiate with your creditors. 

If your credit card debt has become overwhelming, you can address it without government debt relief. Debt relief options include debt consolidation, debt management, debt settlement, and more. Here are a few more details that could help you.

Do Government Debt Relief Programs Exist?

Government debt relief programs exist for certain types of debt, such as student loans, mortgages, and business debts. In some cases, the IRS might let you settle your tax bill for less than you owe. There may also be state-level programs aimed at helping particular groups of people.

Government programs could help with credit card debt in a couple of very specific cases. For example, if you serve in the military, the Servicemembers Civil Relief Act (SCRA) could get you interest rate caps and other protections designed to relieve financial hardship.

For the most part, government debt relief programs don't apply to unsecured debt like credit cards or personal loans. If you fall behind with your payments, consider looking for non-governmental sources of support.

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Do Government Debt Relief Programs Exist For Credit Cards?

There aren’t any government debt relief programs that specifically help with your credit card payments. However, there are government regulations that help protect you and ensure you’re dealt with fairly when you seek credit card debt relief. 

Government regulations for credit card debt relief

The federal government has passed several laws and regulations to protect consumers. Here are two that help to ensure fair practices among debt relief providers:

• The Credit Card Debt Relief Act of 2010. This law prohibits debt settlement companies from charging upfront fees for their services. It’s meant to help you avoid bogus operators or companies that charge more than what’s fair for debt relief. 

• The Uniform Debt Management Services Act. This law helps states regulate debt settlement and credit counseling services. Part of the law caps fees for debt management services. 

Struggling With Credit Card Debt? Check Out These Alternatives To Government Debt Relief Programs

Credit card debt solutions are designed to help make your debts more manageable. There are different routes you could take, each with its own pros and cons. Here are some of the options:

• Debt management plan

• Debt consolidation

• Debt settlement

• Talking to creditors about hardship programs

• Bankruptcy

What is a debt management plan?

A debt management plan, or DMP, is a debt relief solution that allows you to streamline monthly credit card payments. A nonprofit credit counseling agency reviews your budget and credit card debts. They create a personalized plan to fully pay off your unsecured debts in three to five years. While you’re in the program, they provide guidance and education about managing your finances. 

You make one monthly payment to the credit counseling agency. That payment is then distributed among your creditors. Depending on the terms of your plan, your credit card companies may agree to waive fees or reduce your interest rates.

The trade-off is that you typically must close your credit accounts as a condition of your enrollment. This is likely to cause credit score damage until the balances are paid off. Most credit counseling agencies charge a modest fee for their services (typically $25 to $50 per month). They can afford to provide low-cost services because they are funded by credit card issuers.  

The monthly payment in a DMP is typically very high, making it hard to stick with the program over the long term. A DMP is for someone who can afford to fully repay their debts but needs the accountability a credit counselor could provide.

Pros: 

• Streamlines monthly debt payments 

• Potential for fee waivers, interest rate reductions 

• Financial education and support

Cons: 

• Unsecured debts only

• Most people pay monthly fees

• You'll probably have to close your credit cards

• Initial negative impact on credit score

• Doesn’t reduce your debt

What is debt consolidation? 

Debt consolidation involves using a new loan to pay off multiple smaller debts. Most people use either a personal loan or a home equity loan to consolidate debts. Going forward, you make only one payment, to the debt consolidation loan. Debt consolidation loans are typically repaid over two to 15 years. 

Debt consolidation makes the most sense if you can qualify for a lower interest rate and you want a set payoff date for the debt that you’re consolidating. That way, you could simplify the payments and lower the cost of your debt. Credit card debt consolidation can be particularly effective if you swap high-interest debt for lower-interest debt. 

The big risk with debt consolidation is that it leaves the door open to taking on more debt. Consider closing your credit card accounts after you've consolidated the debt.

Debt consolidation is for someone who can afford their debts and has a good enough credit score to qualify for a new loan.

Pros: 

• Streamlines monthly debt payments 

• Potential for lower interest rate 

• Could help you build and maintain good credit if you make your payments on time and avoid running up credit card debt

Cons: 

• Not everyone qualifies for a debt consolidation loan that would improve their finances 

• Most people pay loan fees when they get a new loan

• Leaving credit card accounts open could be a temptation to create new debt

• Doesn’t reduce your debt

What is debt settlement or debt relief?

Debt settlement means negotiating a lower debt payoff with your credit card company. The creditor agrees to accept less than the full amount you owe and forgive the rest. The terms “debt settlement” and “debt relief” are often used interchangeably. 

It's possible to negotiate a debt settlement on your own. Or you could ask a professional debt settlement company like Freedom Debt Relief to negotiate on your behalf. 

Settling could reduce your debt, but you’ll need to have something to offer your creditors. To save money for making offers, most people choose to stop making debt payments. Instead, they make monthly contributions into a dedicated account. Besides helping you afford to save up money for offers, stopping payments also sends a clear signal to your creditors that you’re in financial distress. That could make them more inclined to work with you, but stopping payments will have a negative impact on your credit standing. Negotiations begin when you have enough saved up to make an offer.

If you’re in a debt settlement program, expert negotiators will work out an agreement with each creditor. After you review and approve it, the debt relief company pays the creditor from your dedicated account. After at least one payment has been made, the company can take its fee from the same account. Debt settlement fees are typically between 15% and 25% of the enrolled debt. 

The monthly payment in a debt settlement program is designed to be affordable. Many clients settle their first debt within months. The entire program could last two to four years.

Debt settlement is for someone who intended to fully repay their debts but now can’t. It might be an option to consider if you’re experiencing ‌financial hardship. If you have already fallen behind with payments and can't see how you'll get back on top, negotiating with creditors is a better strategy than ignoring the problem. 

Pros: 

• Could significantly reduce your debt

• No fees if you DIY

• Get rid of debts faster than by making minimum payments

• No upfront fees

• Affordable payment

• Private 

• Support from debt experts

Cons: 

• Unsecured debts only

• Forgiven amounts may be taxable 

• You’ll pay fees if you work with a professional debt settlement company

• Initial negative impact on credit standing

• Creditors could still pursue you for the debts

Speak to your creditors about hardship programs

If your credit card debt is the result of a temporary hardship such as job loss or medical issue, talk to your card issuer and ask for help. If you contact them before you fall behind on payments, so much the better. 

Here are some of the hardship measures you might be able to access:

• Fee waivers

• Interest rate reductions

• Minimum payment reductions

• Temporary payment suspensions

Call, email, or message your credit card company to ask what help is available. Be ready to explain your situation, including the amount you can pay. Ask what documents you need to provide, and whether there are any other program requirements. 

Pros:

• Temporary relief could help you get back on track

• May avoid being reported for missed payments

• May protect your credit score

Cons:

• Hardship programs are temporary

• You still accrue interest on your balance

• Your card issuer may put limits on your account

• Doesn’t reduce your debt

Bankruptcy

Bankruptcy is a legal process for dealing with debt. Bankruptcy happens in a federal court. 

In a Chapter 7 bankruptcy filing, you can eliminate credit card debts and other unsecured debts, like medical bills. The court could sell some of the things you own and use the money to cover your debts.

In a Chapter 13 bankruptcy, you make payments to the court for five years (three years if you’re low income). You’ll have to pay all of your disposable income into the plan. The court will periodically review your income and expenses, and adjust if necessary. At the end of your plan, remaining unsecured debts are discharged (forgiven). 

Bankruptcies stay on your credit report for seven years (Chapter 13) to 10 years (Chapter 7). 

Pros:

• Stops collections 

• Stops foreclosure actions

• Could reduce your debt

• Creditors must comply with whatever the court decides. They can’t opt out.

Cons:

• Public record

• Initial credit score damage

• Most people pay court and lawyer fees

• Some debts aren’t eligible (like student loans or past-due child support)

You Don't Need Government Debt Relief To Tackle Your Credit Card Debt

While credit card government debt relief programs aren't a reality for most people, there are other ways to get help. The most important thing is to be proactive in finding the right debt solutions. 

If you're considering credit card debt relief programs, research service providers carefully. Check the fees and online reviews to see what other people are saying before you commit. Beware of any debt relief company that doesn’t tell you about the pros and cons of debt settlement services or demands an upfront fee.