There’s no one right solution to solve credit card debt problems. Every financial situation is different, so the solution that what works for one credit user may not be the best choice for someone else. It’s best if you understand all your options so you can compare them to find the best debt relief option for your needs and goals.
Just know that you’re not alone in your battles with credit card debt. The average household that uses credit cards typically owes over $15,000. In most states, people generally utilize more than 30% of their available credit, which lowers credit scores. And if you have bad credit, you are limited in the number of options you can use to find debt relief. So, the more debt you need to pay back means the less likely it is that you’ll be able to use do-it-yourself solutions successfully.
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Credit card debt relief options
“Debt relief” refers to any solution that allows you to pay off debt more efficiently when traditional monthly payments aren’t working. There is a range of ways to do this. Some are do-it-yourself, meaning you won’t need professional help. Others require new financing, such as getting a loan or credit card that makes it easier to pay off debt. Then you have options that are professionally assisted.
Do-it-yourself and financing options can be a great way to try your hand at tackling debt. But if you find that you cannot manage witling down debt on your own, try seeking the help of a professional.
Do-it-yourself debt relief options
There are several ways that you can try your hand at getting out of debt without professional assistance. Most of them involve taking out new financing, such as a debt consolidation loan or balance transfer credit card. But there are a few ways to seek debt relief without new financing that you can try on your own.
To use this option, your account needs to be with the original creditor. This method is best used when you’re a few payments behind and your account has yet to be closed. This option is similar to a debt management program, except you set up a plan with each individual creditor. If you have more than one arrangement that you want to set up, this method can be time-consuming.
You can make settlement offers to creditors on your own without the help of a settlement company. Basically, you negotiate with the creditor or collector to accept a percentage of what you owe instead of the total amount. If and when they agree, they will discharge the remaining balance.
Bear in mind that you generally must have funds available to make a lump-sum payment. Why? Because creditors and collectors rarely set up partial payment plans – though it has happened in the past. But in most cases, you will need a lump sum of money to settle your debt.
A settlement offer can occur in one of two ways. You reach out to the creditor first with your settlement offer. In this instance, you would write your offer in a formal letter. The other method of individual settlement is when the creditor or collector reaches out to you. They may call or send you a letter offering to discharge your balance for partial payment on your debt.
In this case, you can decide to accept the offer or make a counteroffer. During this negotiation, you can also try to negotiate a pay-for-delete if it’s a collection account or a re-aging if the account is still with the original creditor. However, be aware that these methods are not guaranteed. If a creditor or collector tries to get you to settle for a higher percentage in exchange for fixing your credit, make sure to get that agreement in writing first!
Relief options that require new financing
If you still have a good credit score, there are two ways to find relief from credit card debt that involves taking out new financing. You essentially take on a new debt that helps pay off your existing debts more efficiently. The key goal is to reduce or eliminate the APR applied to your total credit card balance.
A balance transfer credit card allows you to transfer balances from your existing accounts to a new card that offers low or no APR on balance transfers. These cards often offer a 0% APR introductory rate when you first open the account. That gives you 6-18 months to pay off the transferred balances interest-free. However, there is usually a fee for each transfer that ranges from $5-$10 per transfer or up to 3%-5% of the balance you transfer.
This option works best if you have excellent credit and a limited amount of debt to repay – usually $5,000 or less. Any amount higher than that makes it difficult for most people to pay off the full balance before the 0% promotion rate ends. If you don’t pay the balance in that timeframe, you’ll be right back where you started with a high interest rate credit card and a large amount of debt. You generally also need a good amount of cash flow available, so you can pay off your debt in large chunks. If you’re short on cash, this probably isn’t the best option for you.
A debt consolidation loan is a personal loan that you take out for the purpose of consolidating debt. If you have good credit, you’ll qualify for a low-interest rate loan that you can then use to pay off your credit card balances. This leaves only the loan to repay. The reason why you want to take out a loan is that typically loans offer much lower rates than credit cards for the same credit score, plus you get the benefit of fixed payments.
Debt consolidation loans usually only work up to a certain amount of debt. For most people, a loan is only a viable option if you owe $35,000 or less, depending on your budget. You also need good credit to qualify for the lowest APR possible. Some lenders may have other restrictions, such as requiring you to close your credit cards to secure the loan.
Credit card debt relief programs
There are many different ways that you can use to try and solve credit card debt problems on your own. But if you’ve exhausted all the do-it-yourself options and you are still having trouble paying off your debt, you may need to call in professionals. Professional help can often be the fastest, easiest, and most cost-effective means of eliminating credit card debt.
You’ve got two options: Enroll in debt management or debt settlement program. With a debt management program, you pay back everything you owe to avoid credit damage. Then you reduce or eliminate interest charges, so you can get out of debt faster, and often with lower monthly payments. By contrast, debt settlement gets you out of debt for a percentage of what you owe. It’s usually the quickest and cheapest option to eliminate debt. However, it can do significant damage to your credit score.
A debt management program is a form of assisted debt consolidation. But it differs from other types of consolidation because you don’t have to take out new financing.
Here’s how it works:
- A consumer credit counseling agency helps you set up a repayment plan that fits your budget.
- Then they negotiate with your creditors to reduce or eliminate interest charges and stop penalty fees.
- Once your creditors agree to receive payments through the program, your program starts.
- You make one payment to the credit counseling agency each month.
- Then they distribute the money to your creditors as agreed.
But unlike other types of consolidation, you still owe your original creditors. ’You’re simply paying your creditors back in a more efficient and cost-effective way through a credit counseling agency. Consolidation can help you by reducing or eliminating interest charges and fees. This can get you out of debt faster even though you might pay less each month. And this relief program won’t hurt your credit score because you pay back everything you charged. In fact, many credit users who complete the program actually see improvements to their credit scores.
By contrast, debt settlement programs will definitely hurt your credit score. But they can get you out of debt faster and for less money. With debt settlement, you end up only paying back a portion of what you owe to each creditor. Then they discharge your remaining balance and report the settlement to the credit bureaus – hence why your credit score takes a hit.
Here’s how it works:
- First, you create a monthly set aside account with a debt settlement company.
- Then, each month you put money into the account to generate the funds you need for a settlement.
- Once you have enough funds, the settlement company reaches out to your creditors to negotiate settlements.
- They get each creditor to agree and accept a percentage of what you owe in exchange for discharging the remaining balance.
- Once your creditors agree to the settlement amount, the funds are taken out of your set aside account.
- From there, the creditor closes the account and discharges the remaining balance.
By law, settlement companies can only charge fees once they successfully reach a settlement in your favor. Most companies will charge you a percentage of the amount they save you.
DIY didn’t quite get you by? Get professional debt relief help now so you can find a solution that works!
Government credit card debt relief programs
There’s a pretty common misconception that there is a federal credit card debt relief government program that consumers can use to get out of debt. For the record, there is no grant or any federally sponsored repayment plan that you can use to pay off your credit card debts. That being said, the federal government does oversee and regulate the debt relief industry, which is where some of the confusion about government debt relief programs comes from.
The Credit Card Debt Relief Act of 2010
In 2010, the Federal Trade Commission stepped into regulating debt settlement companies. The main part of this legislation focused on creating what’s known as an advance-fee ban. This regulation prevents debt settlement companies from charging any fees up-front before they complete at least one settlement.
In the past, scammers would set up fake debt settlement companies, promising to help people get out of debt. They’d charged setup fees that would be as high as 25-40% of the debt enrolled in some cases. They’d take the money and then disappear, leaving the consumer out the fees without any settlements reached.
The Credit Card Debt Relief Act of 2010 prevents this scam. Settlement companies cannot charge fees upfront without at least a money-back guarantee. They can only apply fees once they settle a debt on your behalf.
The Uniform Debt-Management Services Act
This was a federal law passed in 2005 that governs the credit counseling and debt management service industry. As a result of the act, credit counseling agencies must register as a consumer debt management service in each state where they want to work. They must also provide full disclosures about their debt management plan and a penalty-free three-day cancellation policy.
Nonprofit credit counseling and grants
One possible source of confusion regarding government grants for eliminating credit card debt may come from how not-for-profit credit counseling agencies operate. These nonprofit agencies qualify for the 501(c)3 status, which makes them nonprofit organizations that exist to aid consumers. This helps ensure that these companies always operate in consumers’ best interest, instead of trying to turn a profit.
In order to fund their operations, these companies get grants from credit card companies to provide financial education to consumers. Credit card companies basically pay companies that prove they exist to help their customers. This allows nonprofit credit counseling agencies to provide debt management services at a relatively low cost.
Bad ideas for credit card debt relief
Not all credit card debt relief solutions are created equal! These bad ideas for debt relief put your finances on shaky ground and could make for a bumpy financial ride long-term.
1. Cashing out retirement savings and investments
Cashing out retirement savings and investments is a bad idea because you don’t just drain the funds you take out. You also lose the growth you would have enjoyed on those funds until you put them back. So you take two steps back on saving for retirement anytime you tap your retirement accounts.
In addition, retirement funds like a 401(k) and traditional IRA have early withdrawal penalties. If you take money out before you turn age 59.5, then you’ll face penalties on the funds you take out. What’s more, you must pay taxes on the money withdrawn, since it counts as income. These penalties and extra taxes don’t happen with a Roth IRA, but you’ll still be losing out on savings growth.
2. Borrow against your home
Credit card debt is unsecured, meaning there’s no collateral that secures the debt. Any option that taps home equity to get money, such as a home equity loan or cash-out refinance, is a secured debt. So, if you borrow against your home equity to pay off credit card debt, you effectively convert unsecured debt to secured. If you default on the new debt, you could lose your home.
In general, you want to protect your home’s equity as much as possible. Borrowing against it is extremely risky, and it’s usually not worth that added risk to pay off your credit cards. Even if you default on a credit card and it goes to collections, they can’t take your home. In fact, they must sue you in civil court to force any kind of repayment. But once you take out an equity loan, your home is at risk of foreclosure if you fall behind with the payments!
3. Borrow against a life insurance policy
If you have a life insurance policy that has cash value, then you can usually borrow against it. But just because you can, it doesn’t mean that you should. If you take money out, you effectively take out a loan against your insurance policy. You make a new debt with a whole new set of problems.
If you don’t pay the money back or die before it’s paid off, then the insurer will take out the amount owed plus interest. In other words, your family will have less life insurance to help them live after you’re gone. That money is there to provide your family with a financial safety net in case the worst happens. You don’t want to do anything that will weaken that safety net.
4. Borrow money from family and friends
Unless you don’t mind losing a friend or making family gatherings extremely awkward, it’s best to avoid borrowing money from people you know. Loans between family or friends are a fast way to ruin relationships, so it’s best to keep your money and your relationships separate.
Dealing with delinquent accounts and charge-offs
Delinquency occurs when you fail to make your minimum required credit card payment. Delinquency is just a fancy term for being past due or overdue. What ends up happening when you fall behind on payments is a countdown to charge offs.
A charge-off occurs when a credit card company or lender closes an account as a result of nonpayment. That means the company has basically written off the debt as a loss because they have little to no expectation of receiving payments.
If you’re having trouble making your payments, you should contact your creditors immediately, ideally before you miss the first payment. You may be able to arrange deferment or forbearance, that would pause or reduce your payments while you get back on your feet. This will help you avoid credit damage and closed accounts.
Delinquent and charged-off accounts do serious damage to your credit that can be hard to undo once it’s occurred. Even paying a charged-off account in full may not lead to any notable change in your credit score. With that in mind, debt negotiation is often your best bet. You can ask for forgiveness. However, it is rare that creditors will agree to forgive your balance outright with no payment in exchange.
Credit card features that work against you
Though you may think making minimum payments will help you make more affordable payments, you’re actually flushing money down the drain in the long run. How so? Well, credit card minimum payments aren’t designed to help you get out of debt quicker. In fact, they are designed to make banks or credit card companies profit.
Credit card interest (APR)
Credit card interest, or annual percentage rate (APR), is how lenders make a profit. When you make a minimum payment, or if you fail to make any payments at the end of the month, the lender is allowed to charge interest on the borrowed amount. So, though it may feel like you are dwindling down your debts, you are actually putting more money toward interest charges rather than your principal amount.
However, you can negotiate with your lender to try and ease the burden of debt:
- Ask for deferment: You can explain your situation and give a set time of when you will be able to resume repayments. Make sure the time frame is realistic, otherwise you may negotiate your way out of an extension.
- Ask for forbearance: If your lender won’t pay your payments, you can try for forbearance. This works similarly to deferment except that you reduce your payments for a time instead of pausing them. Be transparent about your financial struggles and reasonably explain what you are able to afford. And be willing to go through the numbers with your lender to help prove your case.
- Ask for a workout arrangement: As a last resort, you can seek a workout arrangement. This basically means your creditor or lender will freeze your account, so you won’t even be able to charge that account. In exchange, you’ll have your payments, interest, and penalties reduced or eliminated.
Minimum payment traps
Credit card minimum payments are unfortunately not designed to help the consumer. In fact, they are designed to keep you in debt longer so credit card companies can make profits. When you only make minimum payments on your debts, it can take you years if not decades to pay off even one account. Never be satisfied with minimum payments. Always pay as much as possible, ideally paying off the balance in full every month. But if you can’t pay it all off, pay as much as you can comfortably afford.
Avoiding credit card fees
All credit cards typically come with fees. To name a few, there are annual fees, balance transfer fees, foreign transaction fees, and late payment fees. And there are a few ways you can get around these fees. With annuals fees, choose cards that don’t have annual fees. Otherwise, consider calling the issue and asking to have it waived.
When it comes to balance transfer fees, credit cards with promotional offerings are the way to go. If you find that you travel to foreign countries often, choose a credit card that doesn’t charge 3% fees on all foreign transactions. And for late payments, the simplest way to avoid them is to set reminders to pay your bills on time. But if you’ve made a mistake, you can call your creditor and ask to have the fee waived.
Higher credit limits
Sometimes people seek out higher credit limits to lower their credit utilization rate. For example, if you have a credit limit of $10,000 and you have $9,000 in outstanding debt, then your credit utilization rate is 90% ($9,000 divided by $10,000). And if you were to get a higher credit limit to $15,000 with the same $9,000 outstanding balance, your credit utilization rate would drop to 60%.
This can be a bad idea for people who have had trouble handling their debts responsibly. A higher credit limit will only become a source of constant temptation if you already have bad habits. So, it would be in your best interest to keep your credit lines as low as possible to avoid backsliding.
Credit card basics – getting the most out of your cards
Credit cards can be extremely useful financial tools. But when they are misused, they quickly lead to financial distress. Once you’ve received the debt relief you need to pay off your debts, you can either swear off using credit cards or you can develop better credit habits.
Here are a few resources that can help you learn how credit works and how to use credit cards the right way. This will help you capitalize on the benefits of using credit without sinking into a debt hole.
Credit card hacks
More and more people are trying to find ways to take full advantage of their credit cards. If you’re looking for credit hacks to help you capitalize on rewards, get the best perks, or if you’re simply trying to better your credit score, there are a few hacks you can try:
- Make use of one cashback credit card on everything you purchase so you can get the maximum points possible.
- When opening a credit card, consider the places you shop frequently and consider opening a card with them to capitalize on all that their credit card rewards have to offer.
- Pay off any charges you make in full every month to avoid paying any interest.
- Never use business credit card points or miles on business trips.
- Don’t cancel credit cards that you don’t use because they help with your credit utilization and the length of your credit history, which are important to your credit score.
- Use your credit card to get airport lounge access.
Getting the right card at the right time
Don’t rush into a decision. Take your time and examine all your options before you pick a card. Whether you need a card to help rebuild your credit or a card that has a promotional 0% APR, or one that earns rewards, make sure it fits your specific needs. From there, you’ll narrow down your choices and decide between no more than two or three similar cards.
The credit card you choose should be helping you achieve your financial goals. So, don’t settle for less, but don’t shoot for the stars either. Find a balance that works for your lifestyle.
Types of credit cards and their benefits
It can be daunting trying to figure out which type of credit card is best suited to your needs. We’ll help break down the types of credit cards so you can have a better understanding of what you may be getting yourself into:
|Types of Credit Cards||Benefits||Best Used For|
|Secured Credit Cards||You set the limit depending on how much money you put down.||If you have a low credit score and need to rebuild your credit.|
|0% APR or Low Interest Cards||Offers 0% APR or low interest for a set period of time.||Making a big purchase and having enough time to pay it back.|
|Reward Credit Cards||Cashback and travel rewards, as well as in-store discounts for store credit cards.||Making strategic purchases to generate rewards on certain items.|
|Balance Transfer Credit Cards||0% or very low rates when transferring balances.||Finite amounts of debt that you can repay quick and interest-free.|
Negotiating lower interest rates
Negotiating lower interest rates is an art form in and of itself. It takes finesses, knowledge, and a lot of patience. But the end game is worth the effort since your reward comes in the form of lower interest rates and lower monthly payments. You may even be able to get a reduction on the time it takes you to pay off your creditor.
Credit card debt questions
You may still have a few questions left unanswered regarding credit card debt. That’s why we’ve created our Credit Card Debt FAQ in hopes that it answers any and all remaining questions. If not, you can always call us at to connect with a certified credit counselor that can provide the answers you need.
Here are a few of the most popular questions about credit card debt that we receive:
Q:Can social security be garnished for credit card debt?
Q:Can you go to jail for not paying your credit cards?
The only real way you can go to jail for racking up credit card debt is if ran up credit cards using someone else’s identity. That’s called credit fraud. So, technically that’s not going to jail for debt because the actual crime is fraud.
Q:Can credit card companies garnish your wages?
Only federal student loans and unpaid income taxes can be garnished out of your accounts or wages without a court issued order. Debts incurred on credit cards or through personal loans cannot be settled with garnishment – unless the collector sues you and the court rules in their favor.
Still not sure what kind of help you need? Let Debt.com match you with the right solution based on your situation.
Article last modified on May 17, 2022. Published by Debt.com, LLC