How Does Credit Card Debt Work Under Debt Review?

How Does Credit Card Debt Work Under Debt Review?

Are you thinking of debt review? Naturally, you’ll have many questions before such a commitment, like how credit card debt works under debt review. Debt review reduces unsecured debt, like credit cards, store cards, personal loans, and overdrafts by commissioning a debt counsellor to negotiate with creditors for reduced debt and interest rates so your debt will become affordable. After you’ve paid all your debt according to the newly negotiated terms, you’ll receive a clearance certificate stating that you no longer owe credit card companies any money.

This blog takes a deep dive into the role of unsecured debt like credit cards in over-indebtedness, why it’s included in debt review, and how to get out of debt.

A Crash Course in Unsecured and Credit Card Debt

Unsecured debt is any kind of debt not backed by collateral (an asset your creditor can take away if you don’t pay it back). It can be revolving (remaining open even as you pay the balance) or instalment loans, which are more commonly secured.

Credit cards are a kind of revolving credit– that’s credit you can use even after you start paying your creditor back. You can pay it in full or in monthly instalments. The latter is more popular, and it’s a large part of why debt review exists: it’s tempting to spend a seemingly endless amount of money and easy to forget it’s not yours.

Too much credit card debt is an easy trap to fall into. Nowadays, you can access multiple credit cards, each offering numerous benefits like cashback and fancy airport lounges.

What Happens to Credit Card Debt in Debt Review?

As soon as you ask a debt counsellor for help with your credit card debt, they’ll ask for a list of other debts, too. This includes mortgages, auto loans, store cards, personal loans, and any other line of credit you have taken out (excluding pawn transactions). The law says that all debts should be included in debt review, you can’t only consolidate and reduce certain debts. This is to protect your assets, like your house and car, from being seized.

The list is to populate an important piece of paper called Form 16, which will list your debts, expenses, assets, and lines of credit. The counsellor will read over the list carefully and decide if you’re over-indebted. If the counsellor agrees that you should have your finances rearranged, they will issue you a Form 17.2, which confirms to the Magistrate’s court that you’re over-indebted.

The court will give your counsellor the go-ahead, and they’ll begin negotiating with your creditors for lower interest rates, longer repayment terms, or even for some debt to be written off. Over the next few years (about 3 to 5), you’ll pay money to a PDA (payment distribution agency), who will distribute the money to your creditors as agreed.

When everything is paid off, you’ll get a shiny clearance certificate that confirms you’re no longer in any credit card debt. Then, you’ll get to submit it to the bureaus, who will expunge every last trace of the debt from your credit report.

Get rid of credit card debt under debt review.

Debt review is a safe and wise way to rid yourself of credit card debt and the endless worry that comes with it. You’ll become debt-free and learn valuable lessons about financial planning with resources like debt repayment templates. Are you ready to become credit card debt-free? Contact DebtCo Group today and get free!

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