Your Guide To Getting Out of Credit Card Debt
11 MIN READ
Published April 06, 2023 | Updated May 03, 2023
If you struggle to make minimum payments on your credit card, it may be time to end the struggle. The best time to tackle your high-interest debt is now, and if you use a combination of the most effective strategies, you’ll be on your way to getting out of credit card debt.
Credit card debt can quickly snowball and get out of control if you don’t have a concrete plan to pay it off. When you are struggling to make the payments each month, it’s easy to feel stuck.
Regardless of how bad your situation may feel, there are many practical tips for getting out of credit card debt.
In 2021, credit card balances increased by 15%, the largest increase in over 20 years. With the surging cost of living, Americans are relying on credit cards more than ever and are worried about their financial future.
Paying off your debt successfully requires a personalized approach that starts with determining your best repayment strategy.
Once you determine that, it is crucial to stick to the plan until you successfully pay off your credit card debt.
Why and How People Get into Credit Card Debt
Nobody intends to get into debt. Here’s why and how you may find yourself in this position:
Credit is a positive word and concept
When you are approved for a credit card by a credit card issuer, you feel that they’ve put their trust in you. The motivation of financial institutions is to profit from you. For many people, it is easy to be tempted to purchase things they can’t afford with credit cards.
Credit cards bank on optimism
When you use your credit card to purchase a new TV, for example, you are optimistic that you’ll be able to pay off the outstanding balance from the next paycheck. Things don’t always turn out the way you plan, and you’re left with large outstanding balances.
Credit cards are used for emergencies
If you were affected by special circumstances such as unemployment or business closure during the pandemic, you would have had to rely on your credit cards to meet your basic expenses. The pandemic resulted in the permanent closure of 200,000 establishments above historic levels in the U.S. in the first year of the outbreak. For many individuals, debt continued to rise, and they were never able to climb out of it.
Credit card minimum payments can be misleading
Despite their intentions of keeping up with credit card balances, most users find themselves making the minimum payment. You may have unexpected expenses or other pressing issues to deal with. Your balance will rapidly grow if you keep making minimum payments.
Why Getting Out of Credit Card Debt Should Be a Priority
Getting out of credit card debt should be a priority because credit cards carry high interest.
If you have outstanding balances, they will continue to grow rapidly as interest charges are added to your account.
Unless you pay off your full balance each month, your debt will continue to snowball. If you pay only the minimum balance due each month, you’ll end up paying more in total due to the high-interest rate. If you get into a credit card debt cycle, the bank will charge you late fees. Worse, if your credit card is maxed out or over the limit, your credit card company will usually raise your interest rate, significantly increasing your minimum payment and making it nearly impossible for you to make your payment. At this point, it will also take you much longer to pay off this debt.
This is especially true if you:
- Make impulsive purchases
- Have multiple credit cards
- Exceed your credit limit
- Miss monthly payments
- Pay the minimum balance each month
Each of these negative habits will make an impact on your credit and can eventually result in delinquency.
Getting out of high-interest credit card debt will take a huge burden off your shoulders and allow you to start saving for your future.
5 Tips to Reduce Credit Card Debt
If you don’t have unmanageable debt yet, there are several things you can do to reduce your debt and turn things around:
1. Read Your Statements
Read your statement each month to be aware of the situation. Your statement will provide you with a lot of helpful information, such as the required payment, due date, current interest rate, when and if a company can raise that rate, and how long it will take to pay off your debt if you only make the minimum payment.
2. Transfer Debt to Lower-Interest Credit Cards
If you have multiple credit cards, compare the interest rate for each one. Transfer balances from high-interest cards to low-interest cards to save money on interest.
3. Make Extra Payments
If you have a high-interest credit card, target it aggressively to lower your balances. Whenever you have extra money, put it towards this card so you can quickly pay off the entire balance.
4. Cut Your Expenses
If you use credit cards to purchase impulsively things you don’t really need, you’ll need to be more aware of your spending. Cut your expenses wherever possible and only use your card for emergencies to avoid adding to your debt.
5. Use Debt or Cash
Use your credit cards only for emergencies. For everyday expenses, use your debit card or cash so you’re more aware of how much you are spending.
5 Tips for Getting Out of Credit Card Debt
If you need help paying down your credit cards, here are a few effective debt reduction strategies for getting out of credit card debt.
1. Debt Avalanche/Snowball Repayment Method
Once you have a clear idea of how much credit card debt you owe, choose a debt repayment strategy to pay it off. The debt avalanche method focuses on paying off credit cards with the highest interest rate first. Once that is paid, you can focus your efforts on the next highest-interest credit card.
For many people, the debt snowball method is easier.
The goal of this method is to pay off the credit card with the smallest balance first. This will give you the momentum and motivation you need to move on to the next smallest debt and so on.
2. Debt Management
Many nonprofit and for-profit credit counseling companies can enroll you in a debt management plan.
Your counselor can also negotiate with your credit card companies to negotiate new terms, lower interest rates, and waive off penalties. Counseling agencies will usually charge you a fixed fee per month for the service.
If you enroll in a debt management program, you’ll not be able to open a new line of credit for some time and will also have to close a few credit accounts.
3. Debt Settlement
If you have a significant amount of debt, debt settlement may be a good option for you.
A debt relief company can negotiate with your lenders on your behalf to settle your credit card accounts for less than what you owe.
These skilled negotiators can help you save up to 50% of your total debt before fees, so they can help you pay off your debt in a shorter amount of time and save money in the process.
This option is particularly helpful for those who have accounts in collections or have low credit scores.
4. Debt Consolidation
If you still have good credit scores but need help to keep up with debt payments on multiple credit cards, debt consolidation can help you.
You can apply for a 0% balance transfer credit card or a debt consolidation loan to consolidate all your credit cards into a single account. A balance transfer fee may apply if you choose to go with a balance transfer credit card.
The main benefit of debt consolidation is a reduction in interest rates.
With a lower interest rate and a single payment each month towards your personal loan, you’ll be able to chip away at the outstanding balance faster and save money on credit card interest charges.
5. Debt Settlement
If none of the options listed above work for you, you may want to consider filing for bankruptcy. Chapter 7 bankruptcy can wipe off all your unsecured debt.
With Chapter 13 bankruptcy, you can restructure your debt and pay it off over 3 to 5 years. Any remaining debt will be eliminated.
Bankruptcy will be reflected in your credit report for up to 10 years, so this option does come with serious consequences.
Bankruptcy will not eliminate student loans and child support payments. Consider this option only when you have exhausted all other avenues.
Ongoing Strategies to Stay Out of Credit Card Debt
Once you have used the tips for getting out of credit card debt listed above, it is crucial to stay out of debt.
Here are a few ongoing strategies to adopt:
Use Credit Cards Only for Emergencies
Just because you have a credit card does not mean that you can or should make use of all that credit. Using up the limits on your credit cards is financially dangerous.
You may think that you’ll be able to pay off your balance soon but will quickly find that the balance sticks around months later.
Keep credit card debt at bay by using it only for emergencies.
Make a Budget
Make a budget to get a clear idea about your income and expenses.
List your monthly expenses such as a mortgage, utilities, auto expenses, credit cards, entertainment, subscriptions, eating out, and anything else you pay for during a month. List your monthly income in another column.
If your income exceeds your expenses, you can use those funds to build your emergency funds or retirement savings.
If your expenses exceed your income, you’ll either need to find a way to reduce some of your expenses or find a way to earn more.
If you don’t bridge the gap between your expenses and income, you may be tempted to fill that gap with credit card debt.
Pay Bills on Time
Always pay your credit card bills before your due date each month. Set reminders if necessary and make it a habit to pay your bills on time.
Missing payments or making payments late will result in late fees. Other than the added penalties that could have easily been avoided, you also risk hurting your credit score.
Seek Credit Counseling
If your expenses and income are out of balance and if budgeting does not come easy to you, you may want to seek credit counseling.
Credit counselors can help you come up with a realistic budget and provide you with personal finance strategies to get out of debt and stay out of it. Beware of any credit counseling agency that asks for upfront fees.
The National Foundation for Credit Counseling is a good resource for finding reliable and trustworthy credit counseling companies.
Getting out of credit card debt is challenging but achievable with the right strategies. If you have a clear plan and are committed, it is possible to achieve a debt-free life.
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Our debt professionals can help you find the right debt relief option based on your financial situation. Connect with us today for a free consultation.
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