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How to Get Out of Credit Card Debt

Director of Education and Corporate Communications
Financial Literacy Specialist

Consumer credit card debt is on the rise in the face of record inflation.

If rising prices are forcing you to rely on your credit cards, you’re not alone. Credit card balances have risen to new heights, and Americans have added $144 billion dollars in debt from the previous year, according to the latest data from the Federal Reserve[1].

“Inflation is rising at a rate that we haven’t seen in 40 years and that’s tough on people,” Herman explains. “If your household income hasn’t increased at an equal rate, then your budget is getting squeezed. And unfortunately for many Americans, they are turning to credit cards to make up the difference. But that’s not a permanent solution. In fact, adding to your balances will increase your credit card bills, making a tough situation downright impossible.”

If you want to pay off credit card debt and learn how to manage it better in the future, you’ve come to the right place. This section of Consolidated Credit’s website is dedicated to helping you learn how to get out of credit card debt effectively, along with how to avoid new debt problems in the future.

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Why credit card debt is so hard to pay off

If you’re working to pay off credit card debt, there’s a good chance it feels like you’re stuck on a treadmill. You make payments month after month, and it feels like you should be making progress, but you’re not getting anywhere. Why can’t you move forward?

The world of credit doesn’t have to be so confusing. Here’s a simple 60-second explanation of how credit card debt works. Credit card debt is revolving. This means the more debt you put in by making charges, the higher your bills are coming out the other side. So, the amount you owe each month changes based on how much you charge. Each payment you make is split into two parts: Paying off interest added and paying off actual debt. If you only make the minimum payments required, the bulk of each payment made goes to interest. As a result, it takes a long time to pay off your debt and credit card purchases can end up costing double or triple the purchase price with interest added. Plus, if you rely too much on credit, your payments can get so big that you don’t have enough money to cover all the expenses in your budget. If you want to be financially successful, you have to keep credit card debt minimized. We can help. Call Consolidated Credit today for a free debt analysis with a certified credit counselor.

The answer is that you’re caught in the revolving payment trap. Credit cards are revolving debts and your monthly payment increases as your card balance increases. Credit cards can also carry high interest rates, which eat away at every payment you make.

If you’re only making minimum payments, less than a third of each payment goes to pay off the actual balance you owe. The rest gets used up covering accrued monthly interest charges.

If you’re facing challenges with credit card debt and need help, talk to a certified credit counselor to discuss options for relief.

3 ways to get out of credit card debt

Getting out of credit card debt usually involves a combination of these two things:

  1. Reduce or eliminate interest charges, so you can focus on eliminating principal (the actual debt you owe)
  2. Finding monthly payments that work for your budget but that pay off credit card debt faster than your minimum payment schedule

Credit card APR is high compared to other types of debt, like a mortgage or auto loan. Average interest rates range between 16-18%, and it’s even higher if you use reward credit cards or have bad credit.

One surefire way to keep yourself stuck with credit card balances? Only making minimum payments. Roughly half to two-thirds of every payment you make is automatically eaten up by accrued monthly interest charges. it can take decades to pay off credit card balances with minimum payments, and that’s only if you stop charging!

You can test this out with our credit card payoff calculator. Enter your total credit card balance and average interest rate to see how long it would take to pay off your debt.

If you can minimize interest charges, then you can focus on paying off your actual debt—also known as the principal. But even so, minimum payments still won’t allow you to get out of credit card debt quickly. Instead, you need to find more efficient ways to pay off your balances. There are three basic options that you can use to get out of credit card debt.

#1: Implement a debt reduction plan

There are two schools of thought for which debt you prioritize first:

  1. Prioritize your balances to pay off the highest APR first, so you can save money by minimizing interest rates.
  2. Start with your lowest balances first so you can build cash flow and momentum for tackling your biggest debts.

Make a plan to reduce debt »

#2: Call your creditors to negotiate

Debt negotiation allows you to work directly with your creditors to ensure your debts get paid off. There are several levels to negotiation, depending on where each account stands and what you need to accomplish:

  1. Negotiate to reduce APR applied to your account
  2. Stop penalties and late fees that are making it impossible to catch up
  3. Set up forbearance if you’re having temporary trouble making your payments
  4. Get a workout arrangement to pay off and re-age a frozen account
  5. Settle a charged-off account for less than the full amount you owe

Instead of hiding from your creditors when you have trouble, work with them to find a solution.

Learn how to negotiate with credit card companies »

#3: Consolidate your debt

Another option to pay off credit card debt fast is to consolidate it. You take all your individual monthly credit card payments and combine them into one payment at the lowest interest rate possible. This is usually done by taking out new financing, such as a balance transfer credit card or debt consolidation loan. However, if you can’t consolidate on your own, a debt management program allows you to consolidate debt with professional help.

Consolidating debt allows you to simplify your bill payment schedule, save money on interest charges and get out of credit card debt faster. In addition, in many cases, you may reduce your monthly payments, too. And since you minimize APR, you can end up paying less each month and still get out of debt faster than you could with traditional monthly payments.

Understand your options for debt consolidation »

Is it time to get professional help to get out of credit card debt? Talk to a certified credit counselor to find the best way to pay off debt in your unique financial situation.

Managing credit card debt every day

Once you get control of credit card debt and become debt-free, you need to learn better ways to manage your debt moving forward. Credit cards can be a useful tool and be part of your financial strategy without causing problems with debt. But only if you know how to manage credit card debt correctly.

How to use credit cards interest-free

Interest charges are not applied to purchases as soon as they are made. In fact, they’re only applied when you carry a balance over from one month to the next. If you start every billing cycle with a zero balance and then pay off any charges you make at the end of the billing cycle, interest charges never apply to your debt.

That’s right! When used correctly, you can use credit cards interest-free. You get all the benefits of credit – purchase tracking, reward programs, ID theft protection – without all that extra cost. To do this, you must start and end every billing cycle with no balance.

And some credit cards make it even easier by offering a grace period. This is a set amount of time after the billing due date that you have to pay off your balance before interest charges apply. So, if you have a 10-day grace period and your bill is due on the 5th of the month, then as long as you pay off the balance before the 15th, you won’t pay any interest charges.

Credit card grace periods are pretty rare these days, but even if your credit card doesn’t have one, you can still use credit cards interest-free. Simply pay the balance off in full by the due date.

It’s also important to note that this only applies to purchase transactions. APR always applies on other types of credit card transactions, such as cash advances or balance transfers. But for everyday purchases, this strategy works!

How much credit card debt is too much?

Every financial situation is different, but there are some simple metrics that you can use to gauge if you have too much debt. First, you want to make sure that your overall debt load is balanced against your income. Then you want to make sure that credit card debt payments fit your budget. Finally, you need to keep credit card balances low relative to the available credit limit on a particular account.

Learn how to tell when you have too much debt »

Get more tips on managing credit card debt

There are other techniques that make it easier to manage debt, including during expensive times of the year, like the winter holidays. Learning how to manage credit card debt is crucial to avoid debt problems and minimize how much you spend on interest charges.

Find more debt management tips »

Credit card debt management for college students

Credit card companies wait for consumers to turn 21, so they can start selling you credit cards. But you’re not exactly getting a class in college on how to use those cards without abusing them. Student loans are a big enough financial burden for most students. The last thing you need is credit card debt. But gradually taking on credit can give you a financial edge by raising your credit score, so it’s learning how to use credit correctly can be key.

Understand the risks and rewards of using credit on campus »

Is it time to get help to pay off credit card debt?

Let’s be honest. Most of us would prefer to solve challenges with debt on our own. Asking for help isn’t easy and it can feel like you’re admitting defeat. You may also feel embarrassed to admit that you’ve gotten yourself into a bad situation with debt. If so, you’re not alone. Clients and alumni of Consolidated Credit’s debt management program often say the same thing when they share their debt stories with us.

The problem with putting off asking for help is that it gives you time to dig the hole you’re in deeper. If you’re struggling to keep up with your payments or juggling bills to stay ahead, something will eventually drop. Missed payments and collection accounts decrease your credit score, which limits the options you have for debt relief. It’s often better to get help sooner, rather than later, to minimize the potential damage caused by debt problems.

And struggling with debt is just as hard on you as it is on your finances. Financial stress from credit card debt can consume your thoughts and lead to mental and physical health problems. It can make you less productive at work and more likely to have fights at home. Getting help can give you peace of mind and the confidence that you’ve found the right solution to get results.

Take Consolidated Credit’s Debt Quiz to see if you need help

There are certain actions and behaviors that are indicative of a credit card debt problem that you can’t solve on your own. In other words, if you’re doing things like taking loans from family or making promises to creditors that you can’t keep, it’s probably a sign that you need help. Consolidated Credit has created a simple 13-question debt quiz that can help you know for sure if you need professional debt help.

Take Consolidated Credit’s debt quiz now »


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