How to Get Out of Credit Card Debt

It is financially and emotionally crippling to have high interest credit card debt. According to CNBC, "55% of Americans with credit cards have debt" and according to Fool.com, The average American's credit card balance is $6,194 as of the second quarter of 2019 and 61% of American consumers have at least one credit card while the average person has four.

You may feel burdened and stressed thinking about what steps to take next, but just take a deep breath and continue reading as we look at ways to find financial freedom again.

Good Credit Matters

Keeping good credit is a priority in order to rent housing, buy a car, or even sign up for new utilities. If your credit is already bad, you can start to raise that score by facing your debt and working toward paying it down. Credit is not always just about how much debt you have in comparison to your income. It is also about consistently paying bills on time or working out situations with your creditors before misunderstandings happen.

Revolving Debt

Unlike car or house loans that are designed to last for a certain number or months, credit cards are designed for short-term repayment. Credit cards have much higher rates because they are meant to be paid off each month. Any time you carry a balance on your credit card and only make the minimum payment amount, you accrue interest charges. Over time, if you carry a debt on a card, the total amount you owe can end up costing more than the amount you originally borrowed!

List Your Debts

First off, sit down and make a list of your credit card debts and what the percentage rate is for each of them. Once you find the information, focus first on one that could be paid off fairly quickly. Otherwise, look at your highest interest rate card. Focus on making a plan for that card first while paying the minimum amount for the others.

Pay More than the Minimum

If you can manage to pay even a little bit more than the minimum amount each month, your debt will fade much faster. It can be helpful to put your numbers into a calculator designed to help you visualize what you owe and how paying a bit extra each month really can make a difference.

Calculate Possibilities

Different credit cards have different terms and conditions, so it makes sense to read the fine print and then try a helpful site like calculator.me See for yourself as it breaks down monthly payments into principal and interest sections, designating how much of your payment is applied to each category. You can also see when your debt will be paid off with each plan you enter in. Making your plan and sticking to it is the way to pay off your debt. Having the knowledge you need to really understand how credit cards work can make all the difference in knowing how to pay them off.

State Resources

If you are struggling because of layoffs or unemployment, look into what programs your state has to offer. There are programs in almost every state to help with the huge numbers of people struggling with the economic turmoil because of Covid. Apply for unemployment if you have not at State Unemployment Insurance. Also check out the Lost Wages Assistance Program.

There may also be programs for free food or clothing that you can take advantage of while paying down debt. Also, consider taking a job that is not in your field of study until a more suitable position comes along. You might even find you like the new area of work better.

Negotiate Your Debt

Call the credit card customer service line for your credit card. Let them know that the coronavirus pandemic has thrown your financial course off track. Most of the credit card companies are offering programs to help you if you are in this situation. They may ask how you have been impacted, so be ready to provide letters or statements about your financial situation and how the pandemic contributed.

The credit company may have one or more available programs to help you. Continue to ask questions until you are sure that the service representative has disclosed all of the available options for you. Consider the terms and conditions of the agreements they are offering and ask questions. According to the ConsumerFinance.gov, there are key questions to ask about each program.

Ask the Credit Card Company Representative:

  • If I can’t make my payment as a result of the coronavirus pandemic, do you have a financial relief program?

  • Are there fees associated with these options?

  • If I’m able to defer or lower my monthly payments, will interest continue to accrue during this relief period?

  • How long does the relief period last and when will I need to start repaying my bill?

  • What happens if my financial situation hasn’t changed once the period ends? Is there an option to reevaluate?

  • What information will be reported to the credit reporting agencies?

Because of the CARES Act, your creditors may be willing or required to give forbearance, extensions, a reduction in interest rates, or flexible terms of repayment. Some lenders are not reporting late payments to the credit agencies and are also waiving late fees.

If you come to an agreement with a credit card company, always have them send you a copy of the agreement to read before signing. Read through it and make sure that it is the same agreement you heard from the creditor on the phone. After you sign, ask for a copy to keep for your records. Check your bill each month to be sure that the agreement is still being honored.

Continue to use any extra money you have to pay down as much as you can each month so that you move in the right direction.

Consumer Debt Relief Organizations

Sometimes we are overwhelmed by too many things at once and need more help negotiating our debt. There are programs out there who will call your loan providers to negotiate your monthly payment down to manageable levels. They will then give you one payment each month instead of you having to make multiple high payments each month.

When looking at a program to consolidate your debt, it is important to make sure that the organization is reputable. Usually these organizations are non-profit and focus on also helping you plan and budget so that you can find your way out of debt. Choosing this route will affect you differently depending on your credit score right now.

“Settling” Debt with Bad Credit

These types of programs are a last resort because they do affect your credit. When you “settle” a debt instead of paying it, your credit score can easily drop 100 points immediately. If your credit is already rock bottom and you are desperate, a consolidation debt relief program could be a good option for you if you are unable to negotiate with the credit card company directly.

“Settling Debt” with Good Credit

If, however, your credit is good and you are just in a bad patch due to the coronavirus epidemic, this consolidation option could make your life more difficult. Instead consider getting an extra job or a better job or unemployment benefits and working on your budget to trim extras. Seek out free financial counseling for help with your monthly budget. With good credit, it is a better option to pay your full debt or negotiate terms with your creditors that will not cause your score to plummet.

Seek Counsel

There are ways to break free from the continual stress of owing more than you can pay. If you are struggling under a load of credit card debt, consult a knowledgeable Consumer Credit Attorney who can show you the way out. There are laws against predatory lending. An experienced attorney will help you recognize if you are a victim of one of these unethical lending creditors. If you are in a hopeless situation, a wise attorney can use the current laws and legislation to free you from the grasp of debt. Sometimes we just need a little expert help to find our way again.

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