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How to Get Out of Credit Card Debt

If you’re like most people, chances are you have credit card debt. In fact, according to Value Penguin, the average debt per American family stands at $6,270. That said, it is very possible to successfully pay off your credit card debt with lots of planning, determination, and time. Everyone’s plan will be different, so keep reading to learn where you should get started.

Options for paying off credit card debt

The first step to paying off your credit card debt is to get organized. Collect all of your financial records, whether online or on paper, and list out everything you owe. This is a great way to assess your current financial situation. Be sure to write out all your monthly bills in addition to your credit card debt, and include the annual percentage rate (APR) – the amount you’re charged to borrow money.

Once you can see each card’s balance and the APR, you can decide how to best move forward. In some circumstances, you might want to start with paying off the lowest-balance cards first. Or, it could be smartest to tackle the debt with the highest interest rate first. 

The next step is to compare your debt with your other expenses and income. This includes things like rent or mortgage debt, grocery bills, and utilities. Then take into account how much money you’re making, the interest earned on your savings, and any other sources of income.

1. Decide on a debt payment strategy

There are a few different paths you can take to tackling your credit card debt. Deciding on a concrete plan and sticking with it will help you reach your financial goals, and hopefully create healthy spending habits for the future.

  • Debt Snowball. The Debt Snowball Method helps you pay off your debt by starting with your smallest debt balance first and then addressing the larger ones. Once you’ve paid off your first smallest loan, begin to roll those payments into the next, and so on. Similar to a snowball rolling down a hill, you’ll gradually make bigger payments and ultimately eliminate all your debt! 
  • Debt Avalanche. The Debt Avalanche Method works similar to the snowball approach, but instead of paying off the loan with the lowest balance, you put money into the one with the highest interest rate. It could potentially save you a lot of time and money compared to snowballing, especially if you have larger amounts of debt to pay off.
  • Pay More than the Minimum. Card card companies charge a low monthly minimum payment (about 2-3% of your balance) to make sure you’re paying them in a timely manner. But to make sure you aren’t giving more money to the bank, pay as much of your balance as you can every month. The longer it takes you to pay, the more money in the credit card company pocket. 
  • Automate. It’s easy to forget to make a monthly payment here and there, so set up an automatic credit card payment so it comes directly out of your bank account. This is a great way to avoid late fees and higher interest rates, and a potential hit to your credit score.

2. Consider credit card refinancing vs debt consolidation

Credit card refinancing and debt consolidation are both ways of helping you pay off multiple debts with a personal loan. Keep reading to learn more about which method would work best for you.

What is credit card refinancing?

If you struggle to pay more than the minimum monthly payment on high-interest credit cards, this could be a good option for you. Credit card refinancing is a type of debt consolidation that allows you to combine multiple credit card balances into one payment. They often come with low, fixed interest rates that don’t change during the duration of the loan.

One way to do this is by using a balance transfer credit card. That way you can pay off your current credit card(s) with a brand-new balance transfer card that has a low or zero-rate interest. Keep in mind that not all low- or no-interest promotional periods last forever, so the credit card company could potentially charge a balance transfer fee in the future. 

What is credit card debt consolidation?

Debt consolidation takes all of your debts and rolls them into one single payment. This option should ideally offer a better payoff deal than your old debts’ original terms, such as lower monthly payments and interest rates. These are provided by a bank or private lender in two different forms: secured and unsecured. A secured loan is backed by one of your assets, like a car or house. An unsecured loan is not backed by collateral and is more difficult to obtain. These may have higher interest rates and lower qualifying amounts, but the interest rate is still usually lower than what is charged by credit card companies. It’s a great way to pay off overwhelming amounts of debt.

3. Work with your creditors and lenders

Healthy communication goes a long way. If you’re in trouble or having difficulty paying off your debt, be sure to speak with your creditors to explain the situation. A credit card issuer may be open to negotiating new payment terms or offer a hardship program, especially if you’ve been a longtime customer. A hardship program provides special relief for those who have circumstances out of their control, such as unemployment or illness, that affect their ability to manage payments. Accepting this help or renegotiating with your issuer could lead to waived fees or a more affordable interest rate, thus helping you get a handle on your debt. And besides, the worst they can say is “no.”

4. Get help from a professional

Financial Coaching

When planning for your financial future and how you’re going to get out of debt, there are certain questions best answered by a professional. Turn to an expert who can provide free advice, support, and guidance for your trickiest of questions. Our financial coaches are a helpful resource for achieving all of your money goals.

Debt Management Plans (DMPs)

This is a viable option for anyone struggling to pay their bills every month. DMPs work by combining all of your unsecured debts into one monthly payment that you can pay off in three to five years. You pay a credit counseling agency and the interest rates, monthly payments, and late fees are lower than average.

Our coaches can answer any questions about Debt Management Plan services if you are considering a DMP.

Debt Settlement

With debt settlement, a creditor agrees to accept less than the amount you owe on the loan. Which sounds great, BUT it’s not an option for everyone. You’ll have to work with a debt settlement company to negotiate with your creditors on your behalf and there are some risks involved. You can always talk to a Credit & Debt coach about Debt Settlement services.

Filing for Bankruptcy

There are a few different types of bankruptcy for when you have no other options for eliminating your debt. Filing for Chapter 7 bankruptcy completely wipes out all your unsecured debts (like credit cards), but there are consequences. Chapter 13 bankruptcy is another option and can help you restructure your debts into a payment plan, which could be good if you have assets you wish to retain.

Monitor your spending habits

Creating a budget for yourself is a great way to stay organized and on top of your finances. Especially when you’re feeling overwhelmed by all your expenses (and perhaps a dwindling bank account). Money Sensei™ makes budgeting easy for everyone, plus they might even save you money! It’s a budgeting app and money tool that gives you free insight into your spending. Get started and see for yourself just how simple it can be to get your finances in tip-top shape.

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