(Jocelyn from Florida) I am trying to buy a house but my credit cards have big balances. Can I legally stop credit card debt from destroying my credit?
Dear Jocelyn,
Buying a home is a worthy goal that depends on your income, your expenses and your history of repaying debt. Your question is an interesting one, in that many people look for “legal” shortcuts that allow them to avoid having to repay the debt that they have incurred.
The truth is that there is no shortcut to eliminating credit card balances. You cannot hire a lawyer to make your debts disappear. Valid debts are incurred under condition that you will repay the debts in full with interest according to your cardholder agreement.
You may periodically see advertisements where scammers claim to be able to legally eliminate your credit card debt. Some claim to be able to exploit some loophole or file certain claims against the companies that will somehow cancel out your debt. All are false.
In order to legally cancel credit card debt, you really only have 2 options and they are both bad.
- First, you may attempt to settle the debt for less than you owe. This generally is possible once you are at least 4 months delinquent on the debt. There is no guarantee that the creditor or collector will agree to a settlement, and even that might be a higher percentage of the debt than you were expecting. Plus, keep in mind that since forgiven debt is taxable, you could pay even more later.
- Second, you could file for bankruptcy. If you pass the means test, you might be able to liquidate your debts through a Chapter 7 bankruptcy filing. If not, then you may end up repaying a substantial amount of your debts over several years through a court-appointed trustee. A Chapter 13 bankruptcy filing is no picnic, and it can hobble your financial progress for several years.
You may have noticed that neither of these choices are very good. Both options will also likely prevent your home purchase for at least a couple of years.
Instead, you may want to focus on some repayment strategies for accelerating your payoff. The snowball method is one such method, where you generally focus all surplus income on repaying the smallest account first. Once it is repaid, then you have even more to use towards the next smallest balance, and so forth.
Mathematically speaking, selecting the accounts for accelerated repayment based on interest rate will get you out of debt the fastest. The PowerPay method is highly recommended since it helps you repay your debts in order based on your interest rates. Even better, the PowerPay site allows for you to alter your repayment strategy to take into account certain preferences that you have.
Can you legally stop credit card debt from destroying your credit rating? Sure. It takes discipline and successful repayment. Otherwise, the choices are not very good.
