Overcoming Credit Card Debt

August 20, 2020 | by Jacob Hamilton

overcoming credit card debt

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According to numbers from the Federal Reserve, at the end of 2019, consumers owed around $1,094 billion in revolving debt, including credit cards. The average American is dealing with around $6,190 in credit card debt, and many people are facing much higher totals. If you’re struggling to get a grip on your finances, discover more about credit card debt solutions below.

What’s So Bad About Credit Card Debt?

Before we get into what you can do about credit card debt, it’s important to understand why you should do anything at all. After all, as long as you make your minimum monthly payment on time, your credit card company isn’t complaining. Why should you?

First, because credit card debt is expensive. It typically comes with higher interest rates than other forms of debt, such as auto loans and mortgages. And if you’re only making minimum payments, you could be paying thousands in extra interest over many years.

Another reason to get a grip on your credit card debt is that it might be lowering your credit score—even if you’re paying all your bills on time. That’s because 30 percent of your credit score is related to credit utilization, which is how much of your total available credit limit you’re using at any given time.

What Can I Do About Credit Card Debt?

Whether you want to improve your credit score or get rid of debt so you can have more financial freedom, there are ways to overcome credit card debt. Start with the steps below to begin working on your debt today.

Decide on a Game Plan

Come up with a realistic plan for paying down your debt. Then, come up with a backup plan or two in case your first plan doesn’t work out. Having a backup plan is important because it keeps you moving when things don’t go as you thought they would. If you only have one plan and it doesn’t work, it’s easier to decide nothing will work and give up.

Choose a method of debt attack that works for you. The two most common are the avalanche and snowball methods.

  • Avalanche debt reduction is when you pay down debt in order of interest rate. You keep making monthly minimum payments on all your other cards while paying as much as possible on the card with the highest interest rate. That lets you pay that card off faster, potentially saving a lot on interest. Then, you do the same with the next highest card and continue until all cards are paid off.
  • Snowball debt reduction tackles debt in order of total balance. You keep making monthly minimum payments on all cards while paying as much as possible on the card with the smallest balance. Then, you do the same with the next smallest balance. The benefit of snowball debt reduction is that you can get some quick wins early, and by the time you’re trying to pay off the largest balances, you’ve freed up a lot more money to do so.

Whatever method you choose, remember that paying more than the minimum is critical. Otherwise, you could be paying down those balances for decades, depending on how much you owe.

Keep a Close Eye on Your Credit Spending

Making a commitment to paying down your balances is only one side of overcoming credit card debt. It doesn’t matter how much you’re paying if you’re running up more debt at the same time. Keep a close eye on credit spending. If possible, stop using the cards altogether or only use them for items you could pay cash for. Then, use that cash to make an extra payment on the card each month so that you’re not carrying over larger balances than you started with.

Consider Consolidating Your Debt

Sometimes, you simply don’t have enough money to cover required payments on all your cards plus make extra payments to bring down the balances faster. In other cases, you might simply be burned out managing this debt and tired of trying to juggle multiple statements and bills every month.

One option for overcoming this type of credit card debt is to consolidate your credit card debt. This moves all the debt under a single account, which can save you money and make the debt easier to manage. Two common credit card debt consolidation methods are:

  • Balance transfer cards. If you can qualify for a balance transfer card, you may be able to take advantage of a 0% introductory APR offer. This lets you transfer higher interest credit card balances and pay them off over a set period of time without paying any additional interest costs.
  • Consolidation loans. Another option is to take out a personal loan and use the funds to pay off your credit card debt. You make one monthly payment on the loan until the debt is paid off.

Just make sure if you try either of these options, you don’t run up the balances on those cards again. That can leave you in a position where you owe double the debt you started with.

Negotiate With Credit Card Issuers

You may be able to reach out to your credit card company for some assistance, especially if you’ve always paid your bills on time and you’re an account holder in good standing. For example, if you pay on time and your credit score has gone up since you opened the card, you might ask to be considered for a decrease in interest rate. A lower interest rate helps you pay off your debt much faster.

Many credit card companies also have programs meant to assist people who are struggling financially. If you’re unable to make your credit card payments at all, especially due to a change in income or personal emergency, call customer service and ask about financial assistance options. Some options might include a payment plan to help you pay off credit card debt at a lower interest rate, reduced minimum payments or forbearance, which lets you skip one or more monthly payments without negative consequences.

Know the Risks of Other Options

Some other options for overcoming credit card debt might be available to you, but they come with some pretty big risks or disadvantages. We’ve highlighted a few below.

  • Settling your debt. This is when you agree to pay less than you owe and the creditor agrees to call the debt paid in full. But the fact that you didn’t pay the total amount you owed does show up on your credit report and can impact your creditworthiness. Debt settlement can also be a frustrating process, and many lenders only consider it after you’ve demonstrated you’re not going to pay. That means you’re already late or in default, which can severely impact your credit.
  • Using a home equity loan or line of credit. This can be a way to reduce your credit card debt by transferring it to a form of debt with a much more favorable interest rate. Just be sure you can make those payments, because you’re tying your home-ownership to the debt. If you fail to make payments, the lender can force you to sell the home.
  • Borrowing from your 401(k). You’ve heard of borrowing from Peter to pay Paul? This option is borrowing from future Peter to pay current Peter’s debts. It’s typically only a good idea if all the other options open to you are much riskier or if you can pay back the 401(k) amount in a short period of time. This helps reduce how much you lose in interest for building your retirement savings.
  • Declaring bankruptcy. This is a last-resort option that can discharge your credit card debt—but it comes with a huge hit to your credit score and potential restrictions on how you can manage your own money in the near future.

Ask for Professional Help

Don’t be afraid to reach out for professional help if you’re not sure what option is right to you. And if you’re going a legal route such as bankruptcy, consult with an experienced lawyer to understand what options are right for you.

Should I Close My Credit Cards Once I’ve Paid Them Off?

The answer depends on your own willpower. If you can keep your cards open without running up debt again, that can help you increase your age of credit. That’s a positive for your credit score. But if you feel you’ll be tempted to use those cards, it might be better to close them. Late payments and high credit utilization that can come from poorly managed credit card debt are much worse for your credit score.

Whether you close your credit cards or not—and whether you’re still digging yourself out of debt or sitting pretty when it comes to your finances—it’s also important to keep an eye on your credit report and score. You don’t want to do all this work to improve your position only to find that mistakes on your report keep dragging your score down. Find out about credit monitoring and repair services from CreditRepair.com that make keeping yourself in the know about your credit history easy.

Jacob Hamilton

Jacob Hamilton

GM of CreditRepair.com

With his master's degree from the University of Phoenix, Jacob has been working as the General Manager for CreditRepair.com for 2 years. Jacob is passionate about consumer finances and doing everything he can to make credit repair accessible....

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