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How To Get Out Of Credit Card Debt Step-by-Step

Not sure how to reach your goal of freedom from debt?
We’ll show you how to get out of credit card debt step-by-step.

Find the right way to reach freedom from debt

You know you have too much debt and you need to pay it off. Now what?

There are plenty of ways to solve a debt problem, but you have to take the same steps to discover which solution is right for you. This guide walks you through the process so you can find the best option.

Pop Quiz

How much credit card debt is too much?

a) Anything over $50,000

b) When your total debt is higher than your yearly income

c) When your monthly payments take up more than 15% of your monthly income

d) Anything over $100,000

Reveal Answer

Ideally, you should use no more than 10 percent.

c) When your monthly payments take up more than 15% of your monthly income

Return to question

Step 1: Assess the damage

It’s scary, but often people who are struggling don’t even know exactly how bad the situation is. You start to fall behind and stop paying attention to the bills because it’s just too depressing.

Still, if you don’t know where you are, then how can you really make a plan to move forward?

So as painful as it might be, gather up the most recent statements for your accounts. You’ll want to know the following:

    1. What is the total amount of unsecured debt you need to pay off? This includes credit cards, store cards, gas cards, unpaid medical bills and payday loans.

Check your credit to see where you stand

  1. How much are you supposed to pay each month? Add up the minimum payments on any debts that you have that are less than six months past due.
  2. How high are your interest rates? One of the goals of consolidation will be to get the interest rates on your debts lowered so you can get out of debt faster. So it’s good to know what’s the highest interest rate you’re paying and what’s the average.
  3. How many of your accounts are in collections? Any debt that’s already been written off can’t be consolidated. Instead, you’ll have to move those debts into a settlement program. So knowing how many of your accounts are already with collectors can help you find the right solution.

Fact: Debts are usually “written off” after 6 months of nonpayment and sent to collections.

Step 2: Check your credit score (or at least estimate it)

If you have a high enough credit score, then you can use do-it-yourself debt consolidation options, like using credit card balance transfers or taking out a personal consolidation loan. But these options don’t work if you have bad credit. You can’t qualify for the good interest rates you’ll need if you want to find debt relief.

Ideally, you would want to check your credit score through something like a credit monitoring service. However, if you’re struggling you may not want to pay for an extra service. In this case, either sign up for a free service or just use your best judgment to estimate.

If you’re struggling, but you’ve managed to keep up with your payments and had a high score to begin with, then your credit score is probably still good. On the other hand, if you’ve fallen behind and maxed out all of your cards, then your credit score will be low – in which case, you’ll need some help.

Step 3: Evaluate your assets

All of us have stuff and many have stuff that’s worth money if we’re willing to part with it. You might not like the idea of parting with your stuff to eliminate debt, but it could be worth it to stay out of bankruptcy where the assets might be liquidated anyway.

So whether it’s downsizing from an owned home to a rental property, getting rid of that Hummer you can’t afford the gas on, or selling off a few collectibles, it might be worth it to see what your assets can fetch.

Step 4: Hone in on the best option

The following list shows the different debt solutions, ranked in order from least to most severe. If you can’t use any of these, then really your only option left is bankruptcy.

Hone in on the right debt solution

  1. Credit card balance transfer. You transfer all of your existing debt to a credit card with low balance transfer APR. This rolls your debts into one payment and makes it easier to since the debt isn’t building with so much added interest. You need an excellent credit score to qualify for the best interest rate possible (ideally 0% APR), a credit limit that’s high enough for you to move all of your debt over, and the willpower to avoid your other credit cards until the debt is paid off.
  2. Personal debt consolidation loan. You take out an unsecured loan and use the money to pay off your debts. This eliminates your other debts so the only unsecured debt you have to pay off is the loan. You need at least good credit to qualify for the lowest interest rate possible (should be no more than 10% APR). You’ll also need a loan that’s big enough to pay off all of your cards, and the willpower to avoid credit until the loan is paid off.
  3. Debt management program. This is an assisted form of debt consolidation, where you consolidate through a third party who negotiates with your creditors and works on your behalf. You can consolidate even if you have bad credit or have too much debt to consolidate with a credit card or loan. You’ll need a trustworthy debt management program provider to be successful. You can consolidate any amount of unsecured debt, as long as none of the debts are more than six months past due.
  4. Debt settlement program. This is a last resort before bankruptcy, where you settle your debts for less than the full amount owed. You to settle up with a creditor so any remaining debt can be written off for you to get a fresh start. You should always confirm that the above three options won’t work before you move forward. Understand this is mostly likely going to ruin your credit.

Pop Quiz

How long does a settled debt stay on your credit report?

a) 3 years

b) 5 years

c) 7 years

d) 10 years

Reveal Answer

The clock starts from the date when the remaining balance on the debt was written off (discharged).

c) 7 years

Return to question

Step 5: Confirm with an expert

The last thing you need to do when you’re struggling is make things worse. Truthfully, it’s possible to do just that.

Let’s say your credit is pretty good, so you can qualify for a debt consolidation loan but it would only pay off half of the credit card debt you have and the lender will only offer 11% APR. Should you take it or not?
How can I help you?This is why it’s always advisable to check with a professional before you sign up for anything. Where’s the best place to get a professional opinion for free? A certified credit counselor.

Since credit counseling agencies are nonprofit, they can’t by law push their own program over another option if the other option is better. So if you contact a credit counselor, they can confirm you’re making the best decision for your situation.

Seem like too much work?

There’s always the easy way – just fill out the form on the right side of this page and let someone do all of that work for you.


Article last modified on November 21, 2017. Published by, LLC . Mobile users may also access the AMP Version: How To Get Out Of Credit Card Debt Step-by-Step - AMP.