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The latest round of new rules for credit cards takes effect August 22. Those rules were made to protect consumers, so each can be taken as an indicator that Credit Card Debt Management is an issue in that area. With a little education, credit management becomes fairly simple and is a very important skill to have. Here are the four changes and what they tell you:

• Penalty Fees: The new law sets a lower limit of $25 as the maximum you can be charged for a late payment. Until now the max was $39, regardless of how low your minimum payment was. For example, you could be charged a $39 late fee for being a day late with your $10 payment. The other part of the new rule is that the late payment penalty fee cannot be more than your minimum payment, i.e. You can only be charged a $10 late fee for being late with a $10 payment. The red flag here points to Late Payments. C

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In Part One of this post, we laid out a strategy for how to eliminate credit card debt. In review, it basically consists of budgeting the maximum amount you can pay monthly and as your minimum payments go down you continue to pay the full amount, with anything over minimum payments being applied towards the account with the highest interest rate.

That’s a good solid strategy. It takes some commitment; when you see that you are paying more than you absolutely have to pay, it can be tempting to cut yourself a break and use the money elsewhere, which leads us to the first tip….

Advanced Techniques to Help With Credit Card Debt Reduction

“Keep your eyes on the prize.” This is so basic and so obvious that it wouldn’t warrant being on the list except for one thing. Success at financial management totally depends on it. With all

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Many of us today have a credit card and if you find one in your wallet, there’s a good chance that you’re going to use it.  Now, what happens if you fall down on hard times and you just can’t pay off your credit card bill?

Yes, there are going to be consequences, but like many people on this Earth, you’re going to have no idea what happens when you’re doing it for the first time.

To make things easy for you, I’ve compiled a simple list of things that are going to happen when you’re thinking about bailing on your credit card bills.  Obviously, why I don’t recommend it, you have to feed your kids before you pay the minimum on your card.

Interest rate will rise: Once you skip on your first payment, the credit card companies will more than likely jack up your rate.  Generally, they will give you 60 days to pay at first, but if you continue to do this, you’re going to see a significant rise in your interest rate.  This is something that you don’t want.

Minimum payment will get larger: Chances are that your minimum payment today is rather small.  It should be fairly affordable to pay at least the minimum.  By doing so, you will save your credit and keep the companies off your back.  With the new credit card ACT, you should be able to see right on your statement on how long it is going to take you to pay it off.

Getting phone calls: After about 60 days of non-payment, you’re going to get emails, phone calls, as well as letters in the mail.   Trust me, as long as your bill isn’t being paid, you’re going to get harassed by these people.  If you wait long enough, they will sell your debts to a third party.  This is something that you don’t want.

Credit score drops: This is an obvious one, but as your credit score drops, you’re going to have a harder time getting a loan, mortgage, or any other type of credit.  Every 30 days, you can count on a big drop regarding your score.

Garnish your wages: Every state is different in regards to this with their law, but you will find that if you don’t pay after a particular period, the company can dip into your paycheck and take out a certain percentage.

After about 6 months, you can count on your debt going to a debt collection company that is going to hassle you until the bill is paid.

If you can, always make sure that you can at least pay the minimum.  By doing so, you’re going to save yourself a lot of stress, as well as help your credit score.  As you can see, you probably don’t want to go down the “not paying” route, but rather stay on the “smarter route.”

If you find yourself in a bind when it comes to credit card debt, you may find that you’re going to look at many options.  From haggling with the credit card companies to declaring bankruptcy.  While there are a lot of options, I can understand why it can be hard to choose one.

When it comes down to debt, there is so much information to absorb and while many of you may not have the time to sit back and learn it, you may have no choice but to head to a professional and that’s okay!

Whether a professional or yourself has learned a little bit about credit card debt forgiveness, I wanted to give you 4 things that you should know about it, before you think about attempting it.

You’re going to be taxed on it

When you settle with a credit card company by going this route, you’re going to find that the creditors are going to send you a 1099-C form.  Whatever debt that was canceled will be taxed.  For example, if you had $7,500 in debt and they settled on $4,000, you’re going to have a $3,500 difference.  That difference will be taxed.

You don’t pay taxes when declaring bankruptcy

If you decide that you want to declare bankruptcy, you’re not going to have to pay the bills off anyways.  Many people have the assumption that they will have to pay taxes on all unsettled debts.  This isn’t the case.   You will be excluded from the tax rule.  I would advise that you meet with a professional accountant if you ever have questions.

It will lower your credit score

If you decide that you want to settle for something less, the credit card companies will report this to your credit report.  It’s going to show that you have no more debt with that card, but it will also state that you settled for a lower amount.

Get everything in writing

While it is tempting to get yourself to pay a lower bill to settle, you will always want to make sure that you get everything in writing.  When you get things in writing, you’re going to find that you will have proof, if anything does happen down the road.

The most common error that you’re going to come across is the taxes at the end of the year.  Just make sure that you understand that you’re going to get taxed on the difference of what you settle for.  If you ever do have questions, be sure to refer to an accountant and/or lawyer that works with debt and bankruptcy.