Credit Card Debt Essentials

Frequently Asked Questions about Credit Card Debt

If you’re facing too much credit card debt, you want answers and you want to find the right solution. When your money, your credit, and your financial future are on the line, you want to have all the facts and make an informed decision that won’t keep you up at night wondering if you made the right choice.

This Credit Card Debt FAQ is intended to help you find answers to the most commonly asked questions about credit card debt and your debt relief options. We encourage you to give us a call at 1-888-881-3619 to speak with a certified credit counselor, who can assess your financial situation and provide personalized advice on how you can find relief from debt. You can also take our Free Debt Analysis and a counselor will get back with you soon.

Credit Card Debt

Q: What is penalty APR?
Penalty APR is the annual percentage rate (interest rate) your creditor applies to your account if you are late or miss making a payment. It is often much higher than your regular interest rate. If you are less than 60 days late then the penalty APR is only applied to new charges on your credit card. If you are more than 60 days late the penalty APR can be applied to your total balance. Penalty APR is typically applied for 6 months.

Q: My credit card interest rate went up and I’m current with my payments. Why?
If you are current with your payments, credit card interest rates can still go up if you have a credit card with an introductory rate. Many credit cards, particularly rewards cards, will feature an introductory rate that applies only for a brief period when you first get the credit card; once the introductory period ends, your rate goes up. It’s important to read credit card contracts carefully to make sure you know what rates you pay and when they apply.

Q: How does credit card debt affect my credit score?
The effects of credit card debt on your credit rating can vary widely depending on your situation. However, factors like having a large amount of total debt and/or having a negative payment history if you’re late or miss payments can have a negative impact on your credit score. If you feel like your credit rating is being brought down by your debt, give us a call and we can offer advice on how to pay off your debt and how you can rebuild your credit.

Q: Are all debts the same?
Not all debts are the same and they work very differently depending on what kind of debt it is. Credit card debt is unsecured revolving debt, while debts like your mortgage and car loan are considered secured installment debts. Learn more about the types of consumer debt.

Q: How do I decide which debts to pay off first?
Always pay the requested amounts due on all your debts, but if you have any extra money left focus on paying off one debt at a time. Since mortgage and car loan payments are fixed, there is not a large benefit in paying more than the amount due. Paying down credit cards reduces your monthly payments, so these are good candidates to pay off first. When deciding which card to pay off, it is generally to your advantage to pay off the highest interest rate credit card first.

Q: I’ve fallen behind in paying my credit card debts and am getting harassed by a collections agency. What are my rights?
If you’ve fallen behind in your payments, call us immediately at 1-888-881-3619 so we can review your options together. You do have rights! The Fair Debt Collection Practices Act (FDCPA) protects your rights when it comes to when and how a creditor or collection agency can contact you. Find out more about your rights under the FDCPA.

Credit Card Debt Relief Options

Q: How do I know when I need debt relief?
This varies for everyone, but there are often signs you can look for that indicate you need debt relief. It may be time to seek help if you can’t afford the monthly payments for all your debts, you’re taking out cash advances to cover your bills, or you’re getting further and further behind each month. Find out more danger signals to look for to determine if you have a debt problem that needs relief.

Q: Are debt consolidation and debt management the same thing?
Debt management is a type of debt consolidation, because it combines multiple unsecured debts into one low monthly payment. However, a debt management program is not the same as a debt consolidation loan. You enroll in a debt management program through a credit counseling agency, rather than taking out a loan. Learn more about debt management.

Q: Will all debt relief options hurt my credit score?
This depends largely on which option you choose and what you do. Debt settlement and bankruptcy produce penalties on your credit report that can remain up to 10 years. Your credit rating is not penalized for enrolling in a debt management program and in some cases successful completion with all payments made on time may contribute to improving your credit rating.The effects of debt consolidation loans will vary depending on how diligent you are in paying back the loan. Always consult with a professional before choosing any debt relief option. Call us at 1-888-881-3619 for a free consultation.

Q: What kinds of debts can I consolidate?
In general, debt consolidation applies to your unsecured debts. You can generally consolidate credit card debts, although this can be dependent on the amount of debt you have and your payment history. In some cases you can consolidate payday loans and cash advances, but it is highly specific to which lender you used. In some cases, you can also consolidate medical bills if they are less than 1 year old. To find out exactly which of your debts you can consolidate, take our Free Debt Analysis and a credit counselor will contact you for a personal debt consultation.

Q: How much credit card debt can I consolidate?
There is no set maximum amount of credit card debt you can consolidate. In some cases clients have even consolidated more than $75,000 in debt, but it all depends on what kinds of debts you have and your own unique financial circumstances. Call 1-888-881-3619 to allow a certified credit counselor to assess your debts and help weigh your options.

Q: Is taking out a home equity loan a good way to pay off credit card debt?
Most experts agree using a home equity loan to pay off credit cards is risky. As unsecured debt you have a number of options available that allow you to pay off your credit cards. However a home equity loan is a secured debt. You can risk foreclosure and losing your home if you don’t make your payments. Always speak with a credit professional and consider all your options before taking out a home equity loan to pay off credit card debt.