Credit Card Debt: Pick a Strategy to Pay It Off

What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?

- Adam Smith

It’s hard to argue, life is not much fun when you’ve got lost in financial jungles and struggle to clear credit card debt. Whether it’s about buying things you enjoy or going out for dinner, financial obligations make life feel pretty miserable.

Are you fed up being dread receiving another bill? Good for you. It’s time for some motivation to kick your finances into shape ASAP. Paying off credit card debt is a tough gig, yet, who said you can’t win this battle?

When you need to take action, it’s smart to start looking for ways on how to pay down credit card debt. But first, it makes sense to change the way you see things. Once you do it, the things you see will change. No, it’s not the other inspirational quote that you repeat to make the magic happen. Instead, it’s more about getting out of your comfort zone.

So, once again, if you want to take the stress out of your debt, you must be willing to carefully examine your general attitude towards it.

To help you make positive first steps in paying down credit card debt, let’s take a deeper look at the numbers. Credit cards are central to the financial lives of nearly 170 million American consumers. Whereas, 1 in 10 consumers owns 6 or more cards. Generally, an average American consumer owns 3 cards, with the median credit limit of $9,500. Yet, if we divide the whole population by generation, the picture will change.

Meanwhile, the average credit card debt amounts to $5,937. To be more specific, this number varies by generation, with Millennials having a lower debt than the older generations.

The credit card market is the largest U.S. consumer lending market measured by the number of users. The percentage of people who carry debt continues to grow and is 60%. Meanwhile, Millennials still have a lower percentage than the other generations.

What’s interesting, people are being smarter about their credit cards. Even though the average American credit card debt continues to grow, Americans use them for a very good reason – to pay for basic living expenses.

Let’s take a sneak peek into the credit card debt statistics. Here you’ll see that the majority of people (64.4%) use cards to build a credit history, which is the best part. Why? It’s considered to be one of the tried and proven ways that significantly impact the credit score.

No wonder, why most financial advisors persist that building a credit history is crucial. The reason? It can affect your ability to borrow money. So, when on the hunt for the best way to improve your credit score, building a credit history is the top priority.

According to Ascend’s research, the majority of Americans (58%) are paying extra to their creditors. It means that they want to get out of debt and are taking concrete steps to do so.

Of course, everyone’s situation is unique and there is no silver bullet on how to lower credit card debt. Yet, the truth sounds like this:

“There are no shortcuts when it comes to getting out of debt.” – Dave Ramsey

How to Pay Off Credit Card Debt Fast

At your current rate of paying down credit card debt, how long it will take you to become a debt-free? Do you know how much you need to pay in interest? Once you know the answers, it’ll be easier to create a plan. Just because there are different reasons why people end up drowning in debt, ways on how to get rid of credit card debt also differ.

Ready to get started? The truth is the only time in your favor was yesterday. Why? It’s obvious, as of today, you already owe more.

If you’re one of 170 million American adults who own at least one card, your strategy is as simple as that. The best way is to make the biggest monthly payment you can handle until it’s all gone. Sounds simple? In reality, there are no real reasons why not pay.

And what is the starting point for people who have multiple accounts to manage? To get you up to speed, at least, 20% of consumers carry balances on four or more cards. That’s where you need to brainstorm. Pay the minimum for each card you have. Can’t afford to pay more? Bad but not a tragedy. Pay off the card that costs the most.

Among several ways possible, you need to find the one that works best for you. This time let’s talk about two possible strategies promising to help to clear multiple debts.

Credit Card Refinancing vs. Debt Consolidation

Even though the two strategies have familiar meanings, the devil is in detail here. Just like when you come to a fork in the road, you have to make a choice depending on what’s your priority. The same here – both credit card refinancing and debt consolidation require you to take out a new loan. The difference yet is whether to get a lower interest rate or save time. So, what’s your choice?

A balance transfer is also known as credit card refinancing. It means nothing new but a process of moving a card balance from a punishingly high-interest rate card to another with a more favorable pricing structure. As such, to pay down debt, you can move a balance on a credit card that charges, say, 19.9% interest, over to one that charges 11.9 percent. Not rocket science, right?

Generally, credit card refinancing is a good and simpler option for those with good credit. And it’s available even for borrowers who don’t have stellar credit. Of course, high-interest rates and expensive fees come as an inevitable part of the option.

As a rule, it involves getting a new card offering a zero-interest balance transfer. A perfect option for those who are ready to pay off the card balance during the no-interest grace period. The trick is yet most no-interest offers are limited typically to 12-18 months. If not, be ready to get approximately 16-20 percent in interest rate.

Benefits of Refinancing:

Well, the primary benefit of using a balance transfer card is to get a 0% interest rate. A good way to save a great deal to eliminate debt within a year.
A quick application process that typically takes a minute or two.
You are not limited to refinance it either with the same lender or with a different one.
If you’re not able to get a 0% interest promotion, you have another option. Consolidate credit card debt by transferring your balances to the card you currently have that charges the least interest.
Once credit card debt consolidation loan is paid off completely, re-access your credit line again.

Shortcomings of Refinancing:

To qualify, your credit score needs to be above 680.
Get ready to aggressively pay off your balances in the no-interest grace period. Otherwise, you face high interest once the grace period ends.
Variable interest rates could go up to 19.9 percent at some time in the future.
Know the amount of the transfer fee. Typically it's 3-5 percent of the total balance transferred amount.
The card receiving the balance transfers comes with a credit limit.
Just because credit cards are revolving arrangements, paying off the balances become a tough gig.

If you need some clear figures, take a look at the study data. According to it, about 36% of American people used a balance transfer to consolidate credit card debt.

Meanwhile, about 64% say they have never transferred a balance to a new credit card with a 0% APR promotional period. In turn, 44 percent of respondents haven’t used a balance transfer because they don’t want another card. And at last, 5 percent of consumers don’t even know that balance transfers are possible.

Debt Consolidation: What’s Your Benefit?

“I have a student loan and several different credit cards with balances on them. I do my best to pay them off but can cover only three of them. The late payments keep stacking up. The solution? How to consolidate credit card debt?”

Does a situation like this sound similar to you? Well, then debt consolidation might be the ticket. Let’s check why this time it’s the best way to consolidate credit card debt.

Think of debt consolidation as a loan that combines all your debts into one single payment. Essentially, it simplifies the repayment process. Yet, once you decide to go for it, get ready it may change your interest rate, payback period, and overall cost. It makes the most sense for borrowers who can score a lower interest rate than what they’re currently paying. Also, it works well for borrowers with over $15,000 in debt.

Consolidation loan works to help you pay off various bills to combine your debt into one payment. Important to note that there are two types of debt consolidation loans – secured and unsecured.

It’s obvious, a secured loan is backed by something valuable like a car, home or savings. Consolidating debt by a secured loan reduces the risk for the lender, as the latter has the right to take possession of the asset if you fail to repay it. Indeed, this might be one of the key reasons why secured loans are less popular in the online lending space.

On the flip side, an unsecured loan is not tied to collateral such as a car or home. Usually, your signature is enough to secure funds. How to eliminate credit card debt with an unsecured loan? Well, quite simple. No need to step into a physical location. Multiple online lenders offer unsecured personal loans online.

Depending on what lender you choose to eliminate debt, the checking process may vary. Generally, a lender reviews your credit history, verifies your income and employment, also may ask for other documentation. The best thing is that unsecured loans are available for borrowers with good credit as well for those with a score in the low 600s. Yet, here’s a trick – since it’s more of a risk to the lender, the lower the score, the higher the interest rate.

Benefits of Consolidation:

quick online application process
multiple bills combined into one easy payment
a lower interest rate and an extended repayment period
lower monthly payment
fixed interest rate and installment payments

Shortcomings of Consolidation:

To help you make a decision, take a look at the figures below. As you can see, credit cards are the most common type of debt consolidating. As much as 56 percent of respondents who took part in the survey, indicated they used a consolidation loan for credit card debt. Other types of loans are also rather popular for debt consolidation.

The single monthly payment was one of the most common reasons for debt consolidation for almost 35 percent of respondents. 32 percent used it to lower their monthly payments, while 29 percent of respondents to lower their interest rate. Anyway, 63 percent of respondents had a positive outcome with a consolidation loan. 29 percent of those who agreed that it did really helped to lower their monthly payments. Meanwhile, 27 percent used a consolidation option as a tried and proven way to lower or eliminate their debt.

How to Consolidate Credit Card Debt on Your Own

Consolidating credit card debt on your own is never a bad idea when it’s used correctly. Keep in mind that it won’t work in every financial situation as well it won’t be a silver bullet for every consumer. So, before you decide to do it on your own, make sure you’re using it correctly and appropriate to your particular financial circumstances.

One of the most common reasons why it doesn’t work is the wrong focus. Change your focus. As long as your focus is on debt elimination, forget about making new credit card charges. Every new charge sets you farther back from your goal, sinking you deeper in debt.

Not a stellar credit score is the other factor to consider before consolidating credit card debt on your own. Why? Think of it this way. You need your consolidation to be effective, right? So, your top priority is to reduce or eliminate interest charges applied to your debt. With a good credit score, you can qualify for do-it-yourself debt consolidation at the right interest rate. Otherwise, you end up with high interest charges that will eat up every payment you make.

If you think that getting a home equity loan is a good way to consolidate credit card debt, think again. Converting unsecured debt into a secured one is always a bad idea. Imagine you fail. The result? The risk of foreclosure is inevitable. So, keep unsecured debt unsecured.

Indeed, you want to find the best solution to consolidate debt on your own. Of course, you expect to get as low interest rate as possible. Yet, one thing you’ve likely missed is a fee. Fees come jam-packed with consolidation option. Your goal is to strive to avoid excessive fees possible. So, if you’ve made up your mind to pay down credit card debt, exclude the possibility to get an extra bill.

No matter how bad your financial situation is, asking for help is never a shame. This is especially true for those with a debt of over $30,000. You’d better don’t fool yourself that you can consolidate debt on your own. That can only weaken your financial situation. So, if you don’t want to feel yourself drifting in an already sinking boat, get assistance.

Depending on how much you owe, sticking to the consolidation plan can be extremely hard. Especially if the repayment is anything longer than several years. So, be strong and keep your end goal in your focus. Anyway, who else can pay down your credit card debt except you?

Just because of the number of financial solutions to consolidate credit card debt abounds, it’s easy to get confused. Weighing refinancing credit card debt vs. consolidating credit card debt could turn on timing.

Now, it’s time to think about what matters to you. If you’re sure with your income and want to get rid of debt as quick as several months, opt for refinance credit card debt. For those whose income struggle, a consolidation loan would be a better option. Decide how much you can afford to pay towards the debt on a monthly basis, and the solution will become obvious.

How to Pay off Credit Card Debt When You Have no Money

“Every month, I get my credit card statements, and I get so stressed out. I have something like $8,000 on maybe five or six cards. There’s no way I can avoid bankruptcy, is there?”

This is by far one of the most popular among all the questions asked. If you find yourself in a familiar situation, here’s what you need to learn.

You won’t get out of credit card debt by using money as you always have. The good news is you have the choice. Some of them are easier than others and offer proven ways on the road to a debt-free life. Change your mind and find a solution that will work for you.

How to Negotiate Credit Card Debt

On the way to a debt-free life, make your first smart step – set a plan. And the first point is to negotiate credit card debt. No matter what option to reduce debt you’ll end up with, getting in touch with creditors is a must.

According to the WalletHub study, the average American held more than $8,602 in credit card debt in 2018. Today, that number is likely to keep growing. No matter the reason why you are in debt, this situation is temporary. To ensure that you’re ready to pay in the future, negotiating credit card debt would be a huge help.

When you’ve fallen behind on your payments, that’s were creditors come into play. Threatening to send you into collections is what they do best. So, you need to go one step ahead – contact your creditor first to ask for a credit card debt settlement.

Don’t know where to start? When you’re thinking about how to reduce credit card debt, learn your options. There are several of them and each of those comes with its pros and cons and works not for every consumer.

Lump-sum settlement works best for settling credit card debt. Generally, it’s a great option to lower debt by paying off the sum into several payments. Say, you’ve got a chunk of money from an inheritance or profit. Contact the creditor and inform that you have the lump sum you agree to pay. Negotiate the bill and get the confirmation in writing. From that moment on, you can’t pay less than you owe, otherwise, it’ll impact your credit score.

Workout arrangement also can help settle credit card debt. On top of that, it can help lower both your interest rate and minimum monthly payment. Also, you have the right to ask the creditor to forgive past punitive fees to reduce your balance. But, indeed, no guarantee that it’ll work out. Chances are your credit line will be cut off, which will definitely impact your credit score.

Forbearance program works similar to a workout arrangement but for temporary financial turmoil. The difference is that forbearance programs offer a brief break from full payments. Of course, it has nothing to do with forgiveness of any credit card debt. So, if you know that your financial problems are temporary, the forbearance program would be a perfect solution. It can help bridge the gap between financial stress and stability.

The debt management program offers you not to contact your creditors directly if you don’t want to. As such, you’ll work through a non-profit agency affiliated with credit counseling agencies. So, now a counselor will work on your behalf with your creditors to find a way on how to settle credit card debt. The counselor can negotiate to lower your debt, reduce or drop fees, as well as lower your payments. Once you pay the entire amount owed, your credit card accounts will be included and closed. The program doesn’t hurt your credit score itself, yet, namely shutting down accounts is likely to affect it.

Debt settlement is the other negotiating program that offers you an effective way to lower credit card debt. This program would be the last stop for those who are more likely to get bankruptcy. As such, you stop paying all the creditors for months to wait until they are ready to accept a lower payment. Indeed, it damages your credit score and those accounts will stay on your credit history for seven years. Before using debt settlement services, make sure you know how much advance fee you need to pay for it.

Other Types of Credit Card Debt Relief Programs

It’s natural for us to think that credit card debt forgiveness means nothing but a complete debt erase with no consequences. Yet, the reality we live in gets us back to the real thing. The truth is that credit card debt relief programs exist, offering you help in eliminating your debt. So, if you want to get help with credit card debt, learn your options.

First, credit card debt help doesn’t mean to be a lifeline. Think of it as the other option to help you clear your debt. Depending on your situation, different relief options offer different solutions. Whether it’s a payment plan, debt settlement or bankruptcy, relief programs vary.

Do research. Knowledge is the power that lights your fire and guides you through the darkness. Not all companies offer the same programs, pricing, experience, and service. Before turning to alternative companies, make sure to check the credit card debt relief government program first. Even though the government has no specific programs to grant credit card debt forgiveness, yet, the help it can provide is worth the effort.

Bankruptcy needs to be your last resort. It’s not ideal but in some cases might be your best bet for partial or full debt relief. It comes in two main options – Chapter 7 and Chapter 13, both of those will have a lasting impact on your credit. And forget not about a set of challenges you’ll face: lawsuits, monetary judgment, and garnished wages.

Debt settlement is the other viable and recommended option when on the hunt for credit card debt help. Best used if most of your debts are charged-off and in collections. It will hurt your credit score too but can help get out of debt faster for less money. As such, you only pay back a portion of what you owe to each creditor. As a result, the average settlement may come out to about 48 percent of what you owed.

Depending on what type of debt you are in, whether it’s student debt or mortgage, there are options. Debt relief programs offered by the government help with credit card debt in most cases. Here's the trick. Most of these programs are not technically government programs. Yet, some assistance programs can help you get some breathing room in your budget.

The first step is to get help. Working with a counselor would be a smart way to get a handle on that debt you owe.

Statute of Limitations on Credit Card Debt

Did you know that most credit card companies and their debt collectors have on average only four years to take legal action to recoup debt that you owe?

Once you get a credit card, you enter into a contract with the creditor and agree to make a monthly payment until the borrowed amount is paid. A statute of limitations on debt sets the rules on how long someone has to sue you. Once that period elapses, the credit card company or collector loses its right to file a lawsuit against you. Yet, there’s a problem. It’s up to you to prove that debt has passed the statute of limitations. The court system doesn’t keep track of it.

Indeed, the period of the statute depends on the state you live in, what type of debt is in question and where the contract was signed. To learn what state your credit card contract applies, check the original law provision included in your contract. This is not the final decision, however. Meanwhile, it can impact the courts may consider this in their decision.

Getting a Personal Loan to Pay off Credit Card Debt

If you find the information above overwhelming, fret not. You are not alone. When struggling with which route to go, consider taking out a personal loan to pay off credit card debt. Personal loans are up more than ten percent from a year ago and the growth has no end in sight. Being unsecured, personal loans are no strange to more than 20 million Americans. Still in doubt? See the figures below.

People run up debt on multiple credit cards and trying to make their payments manageable. In times where some seek a lower monthly payment, others want to use loans to pay off credit card debt within a short-time period. Different alternative lenders try to help people make smarter financial choices. They offer various loan products that will work for particular consumers. If you’re thinking of taking out a personal loan for credit card debt consolidation, learn the rules of the game.

Pros and Cons of Personal Loans to Pay off Credit Card Debt

Pros:

Cons:

The Verdict

As with any financial product that exists today, there’s no ‘one-size-fits-all’ solution. Everyone’s financial situation is unique, so do all the financial products that offer you help with credit card debt.

Be honest with yourself and pick the solution that would be a smart decision for you. To make the right step forward, think of what matters to you. Focus on how to get out of credit card debt and the solution would become obvious. Now, go ahead and do your first steps on your way to a debt-free future.