7 Ways to Effectively Get Rid of Credit Card Debt
“If you find yourself in a hole, stop digging.”
Credit card debt is a common problem affecting people. It can creep up on you, and cause undue stress on your lifestyle and mental health. You may feel like you are in over your head, but, fortunately, there are the following several practical established solutions for handling credit card debt, allowing you to feel better about your finances and overall outlook:
1. Avalanche Method
First, call each credit card company to ask for a payment plan to pay off your credit cards. Many may be of help, in temporarily lowering interest rates and cancelling annual fees and late fees, though they may suspend your card from any future transactions.
Then, pay off your credit cards in order from the highest annual percentage rate to the lowest, while paying the minimum payment to the other cards. As you pay off each card, the leftover amounts will accumulate into an “avalanche” as you apply them to the remaining cards with lower APRs.
2. Snowball Method
As with the Avalanche method, first, call each credit card company to ask for a payment plan to pay off your credit cards.
Then, pay off your credit cards in order from the lowest outstanding balance to the highest, while paying the minimum payment to the other cards. As you pay off each card, apply the amounts leftover to the next card, accumulating in a “snowball” as you have more and more leftover funds to pay off the remaining cards.
3. Balance Transfer
Transfer your debt to a credit card with a 0% APR introductory rate. This will allow you to make payments without interest for a temporary time frame, so that you can more easily pay off your credit card debt.
4. Personal Loan
Take out a single personal loan with a fixed lower interest rate to pay off your cards. Obtaining a personal loan may require a high credit score from many banks.
5. Credit Counseling
If you are too deep in debt to use the previous strategies effectively, you may want to consider credit counseling. If you do, be careful to use a nonprofit agency such as Credit.org, as there may be scam companies out there that will charge you for their services, which will only add to your difficulties.
Agencies such as Credit.org will provide a debt management plan and negotiate with credit card companies on your behalf, to combine your debt into one affordable monthly payment, to pay off your debt in an average of 3-5 years. You will have to stick to a budget, and not be able to use any credit cards in the meantime, but it is an effective and established way to get back on the right track without hurting your credit much, and can actually have a positive long-term affect.
6. Settlement
One way to pay off your credit card debt is to negotiate with your credit cards (or collection agencies, if they have charged them off), to pay a settlement amount for each. A typical amount that many agencies will agree to is to pay 50% off of the outstanding balances. Some will allow you to negotiate an even lower amount, and/or to pay off the debt in increments.
If you use this method, make sure to first have the agreed to terms set in writing (they can e-mail them to you), and to have the agencies provide a written receipt of proof when you have paid off the balance in full. The main downside of paying your credit card debt in settlements, is that they will likely be reflected as such, and have a negative effect on your credit report, and may stay there for 7-10 years.
7. Bankruptcy
As a last resort, you may decide to declare personal bankruptcy. This legal process can have a serious effect on your credit report lasting for 7-10 years, depending on the type of filing, but allows you to get out from under overwhelming amounts of debt, and start over with a clean slate. As stated, it should probably be considered as a last resort, and you will probably need to consult with an attorney.