First things first.. If you find yourself in a heap of credit card debt (or even just a little), it can be overwhelming! We understand.
Although credit card debt is a pretty common occurrence in the US1, it’s not something to take lightly. It can be an emotional drain, really hurt your credit scoreYour credit score is a way for banks and other financial institutions to know how likely you are to pay back a loan. Essentially it's your personal financial reputation., cost a lot of money, and lead to an ever growing mass of debt that becomes nearly impossible to pay off.
Fortunately, with the proper treatment, it is almost always manageable.
Just to make sure everyone is on the same page, let’s clarify what we mean by credit card debt.
Simply put, if you were not able to make a full payment on your last credit card bill, you have credit card debt. This means that on your next bill you will be charged interest for your remaining balance. Something we don’t want.
If you find yourself in this situation, it is important to recognize it (we can help you with that) and take action with these steps:
Stop making charges on the credit card that you weren’t able to make a full payment on. Better yet, stop charging on all of your cards.
Going to cash only transactions might be a pain, but it stops the bleeding right away, acts as motivation to get things straight, and only allows you to spend money you have (ultimately the same way we should use a credit card). If you aren’t able to do this for practical reasons, spend as little as possible on the card.
Most people have multiple debts to pay off at one time. While you never want to miss a payment, or pay less than the minimum, it’s important to pick which debt you want to get rid off first. This is because the order in which you pay off your debts can make a big difference in the total amount you end up paying.
Making a pay off plan can be a lifesaver when it comes to credit card debt. To get more details and make a plan, read our article on how to best prioritize your debt payments. There’s a neat tool in the article that will help you understand exactly how things will shake out.
Once you’ve paid off your credit card debt in full, congrats! You can feel free to start using your cards again, but only if you feel comfortable doing so. If and when you start using credit cards again, make sure you are making full payments every month. If at any point you aren’t able to pay in full, go back to the first step to get things straightened out right away.
If the first line of defense isn’t enough, or you’re looking for ways to make your dollar go further, there are a few other techniques that can help.
Pick up the phone and give your credit card company a call! It might seem old fashioned, but sometimes you can get them to reduce your interest rate or waive late fees just by asking. This technique doesn’t work all the time, but you have a much better chance if it’s your first time making a late payment, or not paying in full. Like the saying goes, “it never hurts to ask!”
If you can’t get your interest rate reduced, consider a balance transfer to an account with a lower interest rate. Sometimes a different credit card company will let you open an account and transfer outstanding balances from other cards to the new account. Combing a balance transfer with the steps in the first line of defense section can really accelerate things.
You can typically find an introductory 0% interest rate for balance transfers. This gives you a grace period where you can aggressively pay off your debt without wasting your money on interest. Pretty awesome!
Balance transfers usually require at least a “good” credit score to qualify (typically greater than 650). If you do qualify for a transfer, there are a couple things to watch out for. Sometimes you are only allowed to transfer up to a certain amount, which may be less than you want to transfer. Additionally, it’s common to be charged a percentage of the transferred balance as a one time transfer fee. These aren’t often deal-breakers, but definitely something to be aware of.
Taking out a personal loan to pay off your credit card can be a risky but effective strategy for a couple reasons. Personal loans typically have lower interest rates than credit cards, so your money will go further with each payment. In addition, a personal loan is structured differently than the revolving creditRevolving credit allows you to borrow up to a certain limit, and then after it's paid back, you can borrow again.
Installment credit, the type of credit used for a personal loan, determines the loan amount up front and you have fixed payments until it's paid off. of a credit card. Because of this, making payments to a personal loan can actually improve your credit score. Not too shabby.
When going this route, it is wise to freeze your spending on all credit cards until the personal loan is completely paid off. Getting into a habit of financing credit card debt with another loan is a pattern we do not suggest.
If none of the previous options seem to be offering relief, there are a few other things that can be done to eliminate your credit card debt.
Debt settlements are one option where you negotiate a lump sum payment for your debt. This lump sum can sometimes be significantly less than what you owe. Typically, this is only possible if you have had hardships such as job loss, divorce, or medical issues. There are many companies that will do this for you, but be careful, there are a lot of scams out there to take advantage of people in this situation.
The final option is to declare bankruptcyNote that you should only really file for Chapter 7 bankruptcy. Chapter 13 bankruptcy is usually not the right option. In either case, talking to a credit counselor is the best next step., something that should be taken very seriously and only used as a last resort. It can take a long time, cost you a lot of money, require you to surrender property, and will significantly impact your life for years.
If you find yourself considering any options in this section, you should seek out help beyond what we can offer. Generally speaking, credit counseling would be a good next step.Here are some resources to get the help you need
Credit card debt is a hard thing to tackle alone. That’s why it’s good to have a friend and advocate to help you along the way. We can provide the guidance you need to succeed in paying off your debt. From helping you prioritize your debt payments, to warning you if additional charges have been made, Previsio will be there.