Learn How to Get Out of Credit Card Debt

Credit Card Debt: A no-hassle guide to understand and eliminating your debt

 

Americans are drowning in credit card debt, and it’s costing us.

U.S. consumers now owe more to credit card companies than they did at the start of the Great Recession. Most consumers currently use more than 30% of their available credit limit, which leads to decreased credit scores. And 13% of consumers believe they’ll be in debt for the rest of their lives.[1] A big contributor to that is credit card debt, which is now the third leading source of debt in the U.S. after mortgages and student loans.[2]

Top Credit Card Debt Statistics

  • $1,071,700,000 (that’s over $1 trillion)

    the amount of revolving debt held by U.S. consumers as of May 2019 [3]

  • $927 million

    the amount of credit card debt held by U.S. consumers [4]

  • $15,482

    the average credit card balance in credit using households [4]

  • 189 million

    the number of Americans with at least one credit card [5]

  • 364 million

    the number of open credit cards in the U.S. right now  [5]

Find the latest credit card statistics to understand your debt »

Don’t let high interest rates and revolving payments take control of your budget.

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 answer is that you’re caught in the revolving payment trap. Credit cards are revolving debts. That means the amount you owe increases the more you charge. At the same time, high interest rates eat away at every payment you make. In fact, if you’re only making minimum payments, then less than a third of each payment goes to eliminate your balance. The rest gets wasted covering accrued monthly interest charges.

If you want to pay off the credit card debt you have 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. We’ll also teach you how to manage credit card debt every day, so you can avoid new debt problems in the future.

How to get out of credit card debt

If you’re only making minimum payments, it will be almost impossible to get out of debt. In fact, it can take decades to pay off credit card balances with minimum payments, and that’s only if you stop charging!



The secret to getting out of credit card debt is to find a more efficient way to pay off what your charged. This usually involves a combination of 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. That means that roughly half to two thirds of every payment you make is automatically eaten up by accrued monthly interest charges.

If you can minimize interest charges, then you can focus on paying off your actual debt – the principal. But even so, minimum payments still won’t allow you 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.

Option 1: Implement a debt reduction plan

Setting up a debt reduction plan can help you pay off credit card debtThis is a repayment strategy that you can do on your own without taking out any new financing. You use your budget to free up as much cash flow as possible to make larger monthly payments. Then you prioritize your credit card debts in a way that works for your needs and goals. This allows you to systematically eliminate credit card balances one by one, so you can become debt-free.

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 »

Option 2: Call your creditors to negotiate

Call your credit card company regularly to negotiate rates and feesDebt negotiation allows you to work directly with your creditors to ensure your debts gets 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 »

Option 3: Consolidate your debt

Consider these 30 credit card do's and don'tsAnother 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 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.

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 »

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.

Managing credit card debt effectively allows you to make purchases interest-freeThat’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 »

Contributors :
April Lewis-Parks [email protected]Director of Education and Corporate Communications
Meghan Alard [email protected]Financial Literacy Specialist