How to Reduce Credit Card Debt in 5 Easy Steps

Learn how to reduce credit card debt on your own so you can pay it off quickly, avoid credit damage and save money on interest charges.

A 5-step plan to reduce debt fast

Let’s be honest – most people would prefer to solve challenges with debt on their own. You don’t have to share your finances with anyone, worry about judgement or put your fate in someone else’s hands. That’s why DIY strategies to reduce credit card debt like the ones we describe below are so useful. With some basic instruction, you can handle the issues on your own and move forward confidence.

Tired of struggling to pay off credit card debt on your own? Talk to a certified consumer credit counselor to find relief now.

Find Relief Now
Still, it’s important to note that these debt reduction strategies won’t solve every debt problem in just any situation. Once you read this page and understand what you need to do, run some calculations. See how long it will take to repay what you owe and how much it will cost. If those numbers don’t make you happy, consider alternative options for debt relief.

The best way to reduce credit card debt

Step 1: First call your creditors to negotiate lower interest rates

This is the all-important first step that most people skip. People often never call their creditors to even ask for lower rates. As a result, it makes it harder to eliminate the debt and leads to higher costs.

Always keep in mind that lower interest rates make it easier to pay off debt. A lower rate means less of each monthly payment you make gets eaten up by accrued interest charges. Thus, you can pay off the principal (original debt owed) much faster.

To do this step effectively:

  1. Check the current interest rate on each credit card you use
  2. Jot down relevant facts about your credit:
    1. Length of time you’ve been a customer for each account
    2. How long you’ve gone without missing a payment
    3. How much your credit score has improved since you opened the account
  3. Check current credit card interest rates to know national average rates for each type of credit card you hold.

Now call the customer service department for each credit card and request a rate reduction. You may be passed up the chain to a supervisor that can authorize a new rate. Find tips to help you negotiate lower interest rates effectively.

Step 2: Prioritize your debts

Now that your rates are as low as possible, organize all the debts you need to pay off, moving from highest APR to lowest. You want to pay off your highest APR debts first because they cost more money. So, if you pay them off first you save money on total interest charges.

Step 3: Streamline your budget to maximize cash flow

Next, you need to get as much cash flow as possible for your debt reduction plan. See how much free cash flow you have in your budget – that’s all the cash you have left after you pay bills and necessary expenses. Then see if you have any unnecessary expenses you can cut temporarily while you reduce your debt. Remember, you will put these expenses back once you’re done eliminating debt. Think of it like a diet you stick to while you lose all that extra financial weight.

The more cash flow you have available to reduce debt, the faster this goes. Faster also means fewer interest charges applied to your debt, so it saves you money, too. It’s worth losing a few discretionary expenses for a short time to these high interest rate debts paid off fast.

Step 4: Pay as much as possible one debt, then minimums on the others

Now you can start knocking out your debts. At this point, you might think you should put a little extra money to all your debts at once. However, this isn’t cost efficient. You wind up with a bunch of $25.00 minimum charges to pay off all at once.

It’s more effective to focus on one debt at a time. You make the minimum required payment on all your credit card debts except the card with the highest APR. You use all the extra cash flow you generated to make the largest payment possible on that one debt. Then you continue to do that each month your balance on that card hits $0.

Step 5: Knock your debts out, one by one

Once you eliminate the first debt, move on to the debt with the next highest APR. Pay it off in chunks, then continue down the line until you zero out ever balance you owe. With each debt that you eliminate, you free up more cash to use towards paying off the next debt.

You can also start putting unnecessary expenses that you cut from your budget back in. This will help you avoid burning out on budgeting, which can lead to more overspending. Experts also recommend that once you pay off your credit cards, some of the funds you used on those bills should divert to savings. So, if you save $500 per month on credit card bills, set up a $250 recurring monthly transfer to savings. That way, you can generate a robust emergency fund, which prevents you from relying too heavily on credit cards.

The next best way to reduce credit card debt

The method described above is considered the best because it’s the most cost effective overall. However, that doesn’t mean it’s the best method in every financial situation. If you have large amounts of debt to eliminate with limited cash flow, the steps described above may not work. This is especially true if your biggest balances are on your highest APR credit cards. It’s easy to get exhausted by a lack of progress, and you may stop altogether.

For example, let’s say your biggest balance is $7,000 on a reward credit card at 22% APR. You only have $500 in extra cash you can put towards that debt. Even with fixed $500 payments, it would take 17 months to pay this debt off in-full. It’s almost a year and a half before you clear off that first balance – so, it’s not exactly easy to stay motivated.

However, let’s say you have two credit cards that each have a $1,000 balance. If you put $500 to those, you could finish paying each off in three months (with interest charges).  This would clear out two bills, giving you extra motivation and extra cash. Now, instead of $500, you’d have $550 because you don’t have to pay two $25 minimum payment charges.

So, in this case, it’s better to start with your lowest credit card balances, rather than your highest APR debts. You knock out the “low hanging fruit,” which frees up more cash to tackle your largest debts. The steps are the same as the five steps listed above; however, at Step 2 you arrange your debts starting with the lowest balance and ending with the highest.

Is debt reduction even the best choice?

Whenever you eliminate debt, you have two main concerns that relate closely:

  1. Is this the fastest way to repay what I owe?
  2. Is this the most cost-effective way to reduce my debt?

If there’s a faster, cheaper way to pay off what you owe, then you should do it. In many cases, this method of rolling up your sleeves and tightening your belt may not be the most efficient. It might be easier and cheaper to do it another way.

So, before you waste months (or years) of your life paying off your debt the hard way, make sure there’s not an easier way first. Look into credit card consolidation or call a credit counseling agency. Even though these agencies administer one type of solution – debt management programs – as nonprofit organizations they’re required to review all your options. They’re supposed to tell you what’s the best way to pay off what you owe.

Compare all the available solutions. See what will take the least time, give you the least hassle and save as much money as possible. Whatever solution that ends up being is the best solution to use in your unique financial circumstances.

Should I Refinance My Mortgage to Pay Off My Credit Cards?

Question:  I’m carrying about $12,000 on nine credit and store cards, and the interest rates are killing me. I already rolled over the balances a couple times to low-interest and zero-interest cards, but I blew through the introductory offers. But I own my condo, and if I refinance it, I can probably cover what I owe. Should I refinance my mortgage?

— Debby in New Jersey

Tendayi Kapfidze answers…

There are several things to consider. Let’s start with the easiest and proceed from there.

On the surface, this is a simple question to answer. Interest rates on a home refinance are much lower than those on credit cards — around 5 or 6 percent versus 16 or 17 percent average for credit cards. So taking a cash-out refinance to pay off the credit cards would certainly lower your interest costs. Another alternative would be to get a personal loan, which has rates from 7 percent and up. That’s higher than the mortgage, but it could still be lower than the credit card rate, depending on your credit profile.

A particular concern, Debbie, is that you said you “blew through the introductory offers.” So you have already attempted to lower your interest cost, which was smart. However, for this strategy to be most effective, it’s important to not add new debt, but instead, work toward paying off the debt. With nine cards in total, it may be that you have been rolling over balances to new cards and then building up more debt on both the new and old cards. Hence, you are not making progress on lowering debt.

Nine accounts is a lot to juggle, and you could benefit from a tool like myLendingTree, which uses algorithms to suggest debt consolidation strategies. This could help you find the best options for your particular personal financial situation. There is also a wealth of educational material that will help you improve your credit score and debt management.

Just to confirm my information, I asked my friend Matt Schulz about your situation. Matt is chief industry analyst at CompareCards.

“Plain and simple, you need to pay that card debt down,” he says. That’s because credit card APRs are as high as they’ve ever been, and they’re just going to go higher. “Zero-interest balance transfer cards are a great way to help knock that interest down, and even if you blow through the introductory periods and don’t pay the balance off in full, you’ve likely still saved yourself a fair amount of interest.”

Matt is also wary about refinancing your home, but he can see a scenario where it works.

“When you have $12,000 in debt, sometimes you need to make a big change,” he says. “If you do all the math and find that refinancing your home will free up a ton of money that you can use to pay down your credit card debt, then it’s certainly worth considering. A personal loan might be useful as well. Just make sure that you do your homework and know exactly what you’re getting into with either of these options and that you understand all the fees and costs that come along with them. The last thing you want to do is make things worse on yourself because you made a rushed and uninformed choice.”

For further information read Debt.com’s education section on “Should I Refinance my My Mortgage?

Tendayi Kapfidze is chief economist for LendingTree.

Can a Judge Forgive Your Debt? And Can a Judge Send You To Jail?

Question: A friend of mine is disabled. Her only income is her Social Security disability benefits. She got into a lot of credit card debt, and one of the credit cards got a judgement against her in court.

A friend told her that because of her low income, the court might just maybe forgive her debt. Is this true?

And what would happen if other credit cards brought her to court? Can she go to jail because she can’t afford to pay the debt back? God, I hope not. Thank you for your help. We appreciate your kindness and your consideration with this question. Thank you so very very much.

— Dori in New Hampshire

Howard Dvorkin answers…

Getting out of debt isn’t as hard as you think. However, understanding how to get out of debt may be the hardest part. Debt management is a program that can cut your total credit card payments by 30 or even 50 percent by drastically reducing the interest rates. And when you’re done, you emerge with no debt and a great credit score.

With debt settlement, you pay pennies on the dollar of what you actually owe. But your credit score can take a major hit, because you’re actually paying less than what you owe. Debt forgiveness means you might pay nothing on your debt, but good look getting a loan in the future.  How do you decide which is best for you? Let Debt.com help you figure it out. Call now for a free debt analysis.

Let’s start at the end, because that last question is the easiest to answer: No, you can’t go to jail for unpaid debts. As long as you’re not defrauding your creditors or doing something illegal, trust Debt.com when it says: “No matter what those debt collectors threatened you with, the police won’t be beating down your door.”

If you click that link, you’ll learn that the United States hasn’t imprisoned debtors since the 19th century. It’s no mystery, however, where that fear comes from: Unscrupulous debt collectors either imply it or come right out and threaten it. In 2013, the last year Debt.com could find statistics, the federal government recorded more than 16,000 complaints that “collectors falsely threatened to arrest the consumer or seize their property for refusal of payment.”

With that out of the way, let’s talk about your friend’s debts.

Yes, it’s possible your friend could have her debt wiped clean. It’s called debt forgiveness, and it’s a powerful weapon. However, like all powerful weapons, it can injure more than just the target you aim it at. That’s why Debt.com has a report called, A Realist’s Guide to Credit Card Debt Forgiveness.

I urge you and your friend to read it, because debt forgiveness has gotten a bad name lately. Why? Because bad people are advertising that they can clear all your debts with forgiveness — and don’t worry, there’s absolutely no downside! It’s amazing and only we know how to do it!

Of course, you’ll end up paying these middlemen a hefty fee for a shoddy service, and you might even end up worse than before you contacted them. Think of it this way: Would you pay hundreds of dollars to someone promising a guaranteed weight-loss plan that lets you eat as many cupcakes and potato chips as you want, with absolutely no downside?

If you want a serious diet plan, you should consult your doctor first. If you want a serious debt plan, you also need to consult a professional. I recommend calling a certified credit counselor at a nonprofit credit counseling agency, where your friend can receive a free debt analysis. From there, all the options can be explored, from a debt management plan to bankruptcy.

If you don’t know which nonprofit agency to contact, Debt.com can introduce you to a reputable one. Bottom line, Dori: Your friend doesn’t have to go through it alone.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Ready to seek real credit card debt relief? Debt.com can set you up with certified credit counselors who know how to help.

Get Started

Does Closing a Credit Card Account Hurt Your Credit Score?

Question: I have transferred all my credit card debt to a single no-interest card for 18 months. I have five other credit cards, and now all the other credit card companies are increasing the limits on the cards I just paid off. Which is better for my credit score: Cancel them? Hold onto them? Or charge a little and pay them off each month? I really don’t want to use them.

— Kim in Pennsylvania

Howard Dvorkin answers…

Here’s the short, cryptic answer: The best thing for your credit score might not be the best thing for you.

Money in a minute: What if your credit score was a pie?

If you picture your credit score in a pie, it’s divided into five slices. But each slide is not the same size.  The largest – a third of the entire size of the pie – is called payment history. That means, do you pay your bills on time? The next biggest slice is just another a third, it’s called credit utilization. That means how much of your available credit have you spent. As you can see, that’s more than two-thirds of the pie.  Three other slices are really small.

Length of credit history is only 15 percent. And at 10 percent each are credit mix and new credit. What’s this prove? Focus most on the two biggest slices and your credit score will be easy as pie.

Now the long answer…

How a credit score works

You credit score is based on five factors. One of those is called “length of credit history,” and it comprises 15 percent of your score.

If those five still-open credit cards have been in your possession for years, then they’re actually boosting your credit score. Here’s the problem, though: You need to keep using them for that 15 percent to keep kicking in.

That means you need to make small charges every once in a while — and then pay them off in full. How often? Once a month to be safe, once a quarter on the outside.

Of course, if this poses too much temptation to once again run up your balances, the safe bet is to close those cards. After all, the biggest chunk of your credit score is called “payment history,” and at 35 percent, if you’re late on even a few payments, it’ll swamp that 15 percent you’re benefiting from.

Need help with your credit card debt? Debt.com can put you in touch with the credit card debt solutions you need.

Get Started

The second-biggest chunk of your credit score — at 30 percent — is called credit utilization. That’s the fancy way of saying, “How much you owe compared to how much you can borrow.” In other words, if you have $10,000 of available credit on five credit cards, and you’re almost maxed on them, your credit score will suffer mightily.

So as you can see, 65 percent of your credit score is determined by paying your bills on time, and keeping your balances low. That’s why it’s so hard to tell you if closing five mostly inactive credit cards is good or bad for you.

There’s one other factor of your credit score I even hesitate to mention, because it’s the most vague and one of the smallest slivers of the pie. It’s called credit mix, and it represents 10 percent of your score. In plain English, this means you have a variety of different credit lines.

Why is this important to lenders? It proves to them that you can pay back all different kinds of debt. In the case of these five credit cards, closing them would reduce the diversity of the debt you’re holding. So that’s another ding on the credit score.

If you’ve soldiered on through this long explanation, then you might see the wisdom in this advice…

  • Completely pay off the no-interest card within 18 months (or face sky-high interest rates).
  • Keep that card and 1-2 of the oldest cards you have.
  • Make small charges to each, and pay them off in full each month.
  • Close the other cards and don’t look back.

Within a few months, you should see your credit score creep up. Over many more months, if you keep paying off your cards each month, you’ll see it jump. Why? Because you’ll have a history of low balances paid on time, you’ll have a few very old cards, and you’ll be considered an excellent customer by lenders. You can’t beat that.

Want to know more? Check out Debt.com’s report, How to Improve Your Credit Score Step-by-Step.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Can I Retire With $60,000 On My Credit Cards? Or Am I Doomed?

Question: We are about $60,000 in credit card debt. I am 69 and need to retire. I will have retirement from my job and $35,000 in my 401(k), plus Supplemental Security Income. My husband is 57 and will keep working. How can I retire?

— Kathryn in Hawaii

Steve Rhode answers…

Retiring isn’t the problem here. This is: Making ends meet for up to the next 20 years.

Having some government benefit and $35,000 in a 401(k) isn’t going to make retirement comfortable for you — or even manageable. It will be tragically impossible to survive on these finances alone, unless your husband has some magic retirement account that will help to make ends meet when he is able to finally retire.

When you say you need to retire and you are on Supplemental Security Income, that indicates to me you have some evolving medical issue. SSI is what’s known as a “means-tested welfare program.” That’s the official way of saying the government will provide cash and Medicaid to low-income senior citizens and the disabled.

I’m assuming this means that continuing to work may just not be possible for you, given your potential medical limitations. Maybe that’s why you have to retire.

Given your possible medical situation, your limited upcoming income, and your debt, the most logical solution here would be to shed the debt quickly with a consumer Chapter 7 bankruptcy. This type of bankruptcy is the fastest way to eliminate debt legally, and in about 90 days your credit card debt will be discharged. That will lower your expenses that you can’t afford in retirement.

Your credit card debt is probably from expenses you paid for in trying to get by in the past. It’s all too common for those Americans struggling to pay their bills to “float” the gap between income and expenses on their credit cards. Sadly, that catches up to you rather quickly…

[If you don’t know if bankruptcy is right for you, read Should I File for Bankruptcy.]

If filing for bankruptcy is the right option for you, Debt.com can help you get the process started.

Get Started

…Retiring is the time to look forward and set yourself up for financial success. The ship has sailed to attempt to repair the past. Given what you’ve shared, you simply can’t afford to either pay the debt, now or in the future, and make ends meet on your new reduced income.

I would visit Benefits.gov and review if you are eligible for any additional supplemental income, medical, or food assistance for your household. You should absolutely meet with a local bankruptcy attorney who is licensed in your state and discuss your situation. And you should inform your husband he is going to have to be the primary breadwinner for the foreseeable future.

This won’t be a pleasant experience while you’re enduring it, but once you’re through it, life should improve. I’d also recommend consulting Debt.com’s Personal Finance section for advice on how to stay out of debt.

My fingers are crossed that your husband has a solid retirement account or pension that is going to help you survive when you are both unable to work.

Steve Rhode is known as the Get Out of Debt Guy and has appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice.

I Work Two Jobs, Yet I’m Drowning in Credit Card Debt. Why?

Question: I owe about $80,000 in credit card debt across something like 22 accounts. I make slightly above the minimum payment on each, but I’m probably going to be missing payments.

Between a full-time and part-time job, I make about $35K-$40K a year. I have a wife who makes a good salary, but she owes $1,000 a month in student loans. She’s in a debt management program, but I don’t know if that’s the best solution for me.

Our combined income a month (after taxes) is probably about $6,500. But my minimum credit card payments are probably above $2,000 a month, When you add the student loans, maintenance ($500), and all other expenses, we’re lucky to even make a dollar

I’ve been in contact with debt management and debt settlement companies, who have given me multiple offers. There are positives and negatives for both. I’ve also contacted a bankruptcy attorney, but my assets outweigh our debt due to my wife and I owning an apartment.

We currently have a negative balance in our account and after we get paid next week, we might still have a negative balance. I’m still not sure what is the best solution for me. Help!

— Michael in New York

Howard Dvorkin answers…

If you tell many people that your household income is $78,000 a year, they won’t imagine you’re mired in debt — especially when the median household income in this country is just over $59,000.

Sadly, what you earn has very little to do with how much debt you have. I’ve counseled millionaires who owed more than they could pay. Some have declared bankruptcy.

In your case, Michael, two debts are hurting you most. They happen to be the two most pernicious: credit card and student loans. Lucky for you, most of the country is suffering right along with you. That means it’s a big enough problem that the government and private sector have come up with big solutions…

Michael writes to me:

I have three incomes, no kids, but I have a lot of debt. I’ve learned a lot in my quarter of a century as a CPA and financial counselor. Maybe the biggest lesson is this, going into debt has almost nothing to do with how much money you make.

I’ve met millionaires who are actually paupers because they’re living larger but borrowing bigger. In Michael’s case, he’s not a millionaire but he makes well above the median income for U.S. households.

Yet, two things are dragging his marriage down: credit cards for him and student loans for his wife. They make $6,500 a month. Yet, they might have a negative balance this upcoming month.

Since he and his wife both have good incomes, no children, and no other real major expenses the first thing he should do is speak to a professional who can help him with a plan to pay down his debt. Why? Because he has options right now.

Thankfully there are programs specifically designed for credit cards and student loans. A debt management program can reduce monthly credit card payments by 30 or even 50 percent. Some of his debt may be eligible and better suited for a debt settlement program.

And the federal government has a slew of programs to reduce monthly student loan payments. How do you find help? It’s easy as visiting Debt.com. And don’t forget to sign up for our newsletters for more great advice.

What are your best debt relief options?

1. Credit counseling

This first step is the easiest. It’s also free. You simply call a nonprofit credit counseling agency and speak with a certified credit counselor. You’ll get a free debt analysis that’s so comprehensive, you’ll probably be surprised to learn exactly where all your money goes.

This is important, Michael, because you’re not even sure how many credit cards you have (“something like”) and how much debt you’re carrying (“about”). Your predicament requires specifics to solve.

Read more: What Is Credit Counseling And Why Do I Need It?

2. Debt management program

The best way to get rid of credit card debt is known as a DMP. It can reduce your monthly payments by 30 to 50 percent and freeze all your late fees.

Sound too good to be true? It’s not. Your credit card issuers will forgo much of their profits to get paid back the principle you owe them.

There are restrictions, however. For instance, you must cut up your credit cards — because you can’t ring up new charges if you owe a bunch of old ones. It can also take months or years to complete a DMP. Still, once you come out the other side, you’re financially free. Almost every DMP client I’ve known has said it’s worth it.

Read more: Debt Management Program Pros and Cons

 3. Student loans

The federal government is worried about student loans. Why? Because the total student loan debt in this country is approaching $1.5 trillion. That’s more than all the credit card debt out there — by almost a third.

There’s no DMP for student loans. Instead, there is a slew of federal programs that can cut your monthly payments, and in some cases, forgive the debt. What’s the catch? It’s the government, and the programs come with complicated names like “income-based repayment plan” and “income-contingent repayment plan.”

Knowing which plan is right for you requires some studying, but Debt.com can introduce you to some experts who can help.

Read more: Federal Student Loan Repayment Plans

4. Debt settlement

Finally, you might have the option to pay less than you owe. That’s called debt settlement, but I only recommend it after you’ve exhausted the other possibilities above.

Why? Because debt settlement severely damages your credit score, it’s a complicated process, and there are unscrupulous people out there who will try to take advantage of you.

Debt settlement is a legitimate and powerful option, but it’s also a serious one. So you should consult an expert first. Debt.com can help you.

Read more: Debt Settlement: What is It and How It Works

Bottom line, Michael: You’re not alone with this problem, and you’re not alone with the solution.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

How Does Accredited Debt Relief Work? Is It For Real?

Question: So I have $21,600 on 12 credit cards, which I ran up because I got killed in my divorce and needed to fix things around the house, from little to big — like a new HVAC. 

I just got back on my feet to where I don’t need to ring up more credit card balances, but I don’t make near enough to pay them off, either. I keep hearing radio commercials on the sports shows about debt settlement, and I see you guys offer that and debt management. 

Here’s the thing: They sound a lot alike, and they both seem shady. No one will help me get out of debt for nothing. What’s the catch with both of these things? And what’s the damn difference? And what’s it mean when you guys keep talking about “certified” this and “accredited” that?

— Simon in Pennsylvania

Howard Dvorkin answers…

This question is a version of one I’ve heard for two decades. It boils down to this: Are there people who really want to help me get out of debt? Or are people in accredited debt relief just looking to take my money and put me deeper in debt?

Here’s the short version of my answer…

How Does Accredited Debt Relief Work?

How does accredited debt relief work? Sometimes when I tell people about accredited debt relief I get a funny look. When I explain they can get a free debt analysis from a certified professional I hear this “come on that’s too good to be true.”

When I tell them a credit counselor can refer them to a debt management program that can cut their total debt by 30 to 50 percent by reducing the interest and getting them on a strict payment plan they say “no way what’s the catch”.
And, when I tell them how debt settlement works they’re equally as stunned.
They are shocked to find out that some creditors will take just 40 or maybe 50 cents on the dollar of the full amount they owe.

When I tell them they’ll pay a fee that’s a fraction of what they’ll save they can’t even believe it. I tell them what I’m telling you right now, believe it, but do your homework because the key word here is accredited.

I don’t have to tell you there are shady people in every line of work but if you actually seek out an accredited debt relief agency that has an A rating or better with the Better Business Bureau and great client reviews you’re probably in good hands.

How do you find the right agency well that’s what Debt.com is for. We’ll introduce you to the best experts out there and then you’ll believe.

Now here’s the long version. Let’s start at the very beginning of Simon’s letter.

Divorce and HVACs

Before we revisit Simon’s question about the validity of debt solutions, let’s take a moment to consider how he got into debt. Divorce is one of the major factors that put people in debt. (The others are accident, illness, and natural disaster.)

I meet clients all the time who are barely making ends meet, but when they come into some money, spend it on a vacation or a new car. When I suggest an emergency fund, I often hear, “But nothing bad has ever happened to me!” As Simon learned, it can happen to anyone.

Also, if you don’t know what an HVAC is, it’s a huge household expense I’ve written about before (How Can I Stop Sweating About My HVAC Loan?). The moral of the story: Everyone can and should have an emergency fund.

Accredited Debt Relief: Debt settlement and debt management

While the two terms are similar, they’re actually quite different. For more on the topic, check out this reader question I answered last year: Is Debt Management Or Debt Settlement Better For Me?

Based on the limited information Simon provided, I can’t advise him which is better. In fact, that’s what a credit counselor is for — and that strikes at the heart of Simon’s doubts.

If you consult a certified credit counselor at an accredited credit counseling agency, you’ll learn which is best for you. Of course, as I said in the video, there are charlatans out there. You can spend an hour searching online and find reputable experts to deal with, or you can call Debt.com — because all the experts we work with must sign our Code of Ethics.

That code obligates our partners to do right by you, and if they don’t, it obligates Debt.com to fix it. Thankfully, we’ve never needed to invoke our Code of Ethics, because in five years, we’ve never had a serious complaint from a client.

So the bottom line, Simon: Do your own research or call us. Either way, there are good folks out there who will help you.

If you need relief from credit card debt, let Debt.com match you with an accredited debt relief service now.

Find Relief Now

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

If I Pay Off My Credit Card, When Will My Credit Score Go Up?

Question: I have a credit card that I can pay off in full, but how long after that will my credit score go up? I need to apply for a personal loan for school, but I need my score to go up before I do that. I know it varies by the source, but about how long after I completely pay off my card will my credit score reflect it? 

— Samantha in Tennessee

[Debt.com founder Howard Dvorkin]

A reader asks, I have the money to pay off my credit card now, but am not sure it’s worth it?

Well, Samantha it is most definitely worth it! When you pay off a credit card, your credit score improves. Why? Because five factors determine your credit score, and one of the biggest is the amount of debt owed. It is 30 percent of your overall score and the biggest chunk is payment history, which is short for – I pay my bill on time.

But more important than your credit score going up is that your debts are going down.

The AVERAGE credit card interest rate TODAY hovers around 17 percent. If you put all your money in the stock market – obviously a bad idea – you’d be hard-pressed to earn 17 percent on your investments. But if you pay off a credit card bill that has a monthly balance of $5,000, you could save up to $85 a month.

That’s $1,000 a year! And you don’t have to do anything to save that money, other than pay off a debt right now. If you don’t think you can afford to do that, call Debt.com today. We know how to make it happen.

Howard Dvorkin answers…

Short answer: There’s no way to know for sure, because the three credit bureaus — Equifax, Experian, and TransUnion — that decide your credit score have never explained their process in such detail.

Shorter answer: About 30-45 days, give or take. Most credit card companies update their account information once a month.

Longer answer: Depending on your circumstances, paying off your credit card won’t make much of a difference for a personal loan — which might be an unwise decision, anyway.

Let’s break this down.

First, there are many ways to boost your credit score. Check out How to Improve Your Credit Score Step-by-Step. If you really need to raise your score in a hurry, check out all your options.

Second, your credit score is based on five factors, but all of them aren’t equal. For instance, “payment history” is the biggest at 35 percent. That’s just a fancy way of saying, “I pay my bills on time.” The next biggest is “debt owed” at 30 percent. So paying off a credit card will definitely help you, but it’s still only 65 percent of the total.

It can also cost you, because 15 percent of your score is “length of credit history.” The credit bureaus like to see that you can maintain long-term relationships with your creditors. So in this case, if you pay off the card and close the account, that’s bad. You can, of course, leave the account open. Learn more at Understanding Your FICO Credit Score.

Third, and perhaps more importantly toward your overall financial situation, I worry about you taking out a personal loan to go to school. I don’t know if you mean college for the first time, or back to school after working for a few or many years.

Either way, I’d first suggest you explore other options, including scholarships. If you apply for many of those, you’re instantly eligible for the Debt.com Scholarship For Aggressive Scholarship Applicants, which is awarded every two months.

All that said, I feel very strongly about this: Anytime you can pay off a credit card and still maintain healthy finances, that’s one of the absolute best tactics for achieving financial freedom. So if you can afford to pay off a credit card, doing so is its own reward.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

I Know There’s A Judgment Against Me For Credit Card Debt, But There Might Be More. What Can I Do?

Question: A few years ago, we found ourselves in a very tough financial situation. So we made the decision to prioritize our bills.

Unfortunately, we fell behind in our credit cards. As time passed, we were able to settle with a few of the cards, but there are a few left that are in limbo somewhere. I know of one that received a judgement against me, and I think there are two more.

The thing is, I haven’t heard from them and I’m not sure what to do. File bankruptcy? Hire a debt settlement company? Or contact the creditors directly?

— Ullisses in Illinois

[Debt.com founder Howard Dvorkin]

This letter is REALLY revealing. Not for what the writer says, but because of what he doesn’t know.

It’s very common for smart Americans to forget to ask basic questions. Like:  How much debt do I owe? Who do I owe it to? And what’s the deadline before bad things start to happen?

Look, I get it. Figuring out your finances is way down the list of fun activities. I’ve been a financial counselor and author for more than two decades, and even though this stuff fascinates me, I know other people look at budgeting like they look at flossing: It’s important, but it’s boring.

Here’s the thing: No one will help you floss your teeth, but there are professionals who can help you with your finances.  It is important to get a debt analysis so you can learn what you need to do. And it’s even easier than flossing, because all you do is call Debt.com.

If you want to get out of debt, knowledge is powerful.

Howard Dvorkin answers…

My answer is going to be general because your question is general. In other words, I can’t be specific because you’re not completely sure how many credit cards you still have open, and which ones have judgments against you.

That said, I can offer you one specific and urgent piece of advice: Pull your credit report. Learn how here: Where and How to Get Your Free Yearly Credit Report. However, I’ll tell you to ignore one part of the advice in that report.

Because there are three credit bureaus — Equifax, Experian, and TransUnion — the law says you’re entitled to one free report from each bureau every 12 months. Debt.com and other experts advise you to pull a report from one bureau every four months. That lets you notice any irregularities in a timely fashion, then repair your credit either by yourself or with the help of others.

In your case, I’m advising you to pull all three reports right away. Your priority is finding out exactly what you owe and to who — and soon.

In my experience, if a credit card company went to the trouble to take you to court and get a judgment against you for unpaid bills, you owe at least $5,000. Any less, and it’s not really worth the trouble. (Although don’t misjudge what I just wrote: Your card issuer still wants and expects to be paid back. They have other options.)

I’m concerned that you “think” you might have more judgments against you. So I also urge you to contact your creditors right after you pull your credit reports. Rest assured, if you owe them, they’ll be able to tell you.

In these cases, I sometimes hear this faulty logic: “Howard, they haven’t contacted me, so if I ignore it, I don’t have to pay!” While it’s true that there’s a statute of limitations on credit card debt, playing that waiting game is dangerous. First, each state has its own rules, which you can see on this map.

Right now, I’d recommend against debt settlement, which has its own set of drawbacks. While you need to pursue bankruptcy at some point, that’s the very last step. Your first ones are to simply gather all your facts. Once you do that, I’d consult a certified credit counselor for a free debt analysis. You can reach one by calling Debt.com at 855-996-9980.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

Quirky Questions From Perplexed People In Debt

If you had $18,000 to your name and had a credit card debt of $16,000 would you pay off the credit card?

— Matt in Michigan

Are there any grants to help me get out of credit card debt?

— David from South Carolina

I have three debts of $17,300, $4,500, and $4,000. Which one should I pay off first?

— Paula in New Mexico

How can I pay off $63,000 in credit card debt when my income is now 30 percent less than when I accrued that debt?

— Michael in Maryland

[Debt.com founder Howard Dvorkin] Every month on Debt.com, I answer questions from our readers, but some questions lack key details that would lead me to give an informed answer.

Sometimes I get asked, “How can I pay off $20,000 in credit card debt?” — and that’s the whole question! The answer depends on so many other factors. How much do you earn? How much other debt do you have? What are your other major expenses?

When there are so many questions, you really need a one on one consultation — and that is what Debt.com is for!

Debt.com can connect you with a vetted agency, where you’ll get an analysis of your situation. I urge you to do this — because here’s the good news. Whatever financial crisis you face, trust me – many others have stared down the same problems. And even better, many have triumphed over them. Because help is available. Right here at Debt.com.

Howard Dvorkin answers…

Four years ago, I began answering reader questions here at Debt.com. The very first one pitted a husband against a wife over the issue of paying down a mortgage faster to save money. Along the way, I’ve answered questions on topics ranging from credit cards to student loans to identity theft. There have also been offbeat questions like, Can I shop for Christmas presents on Dec. 26?

Sadly, I get many questions I can’t answer — not because I’m stumped, but because I don’t have enough information. Several recent ones are above. While I can’t specifically help these individuals, I can give them all some good advice, which I’ll mention at the very end…

If you had $18,000 to your name and had a credit card debt of $16,000 would you pay off the credit card?

The simple answer is: No way. Of course, I don’t know what your monthly income is. That affects the answer. Also, do you own a home? Is it mostly paid off? While Debt.com warns against a home equity loan to pay off credit card debt, it is an option of last resort.

(As we’ve reported, “Using home equity means the financing is secured using your home as collateral. If you fall behind and default, you risk foreclosure. Increasing your risk to lose your home just to pay off credit card debt usually isn’t worth it.”)

Are there any grants to help me get out of credit card debt?

No. You might be thinking of federal student loan programs, in which the government offers several ways to reduce your payments. However, the government has no plans to do that for credit card debt.

I have three debts of $17,300, $4,500, and $4,000. Which one should I pay off first?

All other factors being equal, you should pay off the debt with the highest interest rate first. That will save you the most in the long run. Whichever you pay off first, don’t miss any monthly payments. For a real solution, see below.

How can I pay off $63,000 in credit card debt when my income is now 30 percent less than when I accrued that debt?

I don’t know what your annual income is now, but unless it’s six figures, the answer is: You probably won’t be able to pay off this debt. For you and the others posing the questions above, the only truly helpful answer is credit counseling.

When you call a nonprofit credit counseling agency, a certified credit counselor will drill down on your personal situation and lay out all your options. Best of all, this debt analysis is totally free.

You might find that a debt management program will slash your monthly credit card payments by up to 30 or even 50 percent. You might even need to declare bankruptcy, which is scary, but there’s also counseling for that.

Here’s the big takeaway from today: Whatever your problem is, there’s an expert available to help you. It might not be me, if your question is too short — but it is someone here at Debt.com.

Have a debt question?

Email your question to editor@debt.com and Howard Dvorkin will review it. Dvorkin is a CPA, chairman of Debt.com, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.