3 Credit Card Debt Relief Options You Probably Don't Know About
Save time and money with these credit card debt relief solutions.
Finding debt relief means that you identify a solution that minimizes the burden of debt repayment. The goal is to reduce or eliminate interest charges and fees so you can pay off your debt faster. In many cases, you can pay less each month and still get out of debt faster than with traditional payments. Essentially, you find a better way to pay back what you owe that works for your finances.
There are three basic ways to find relief if you’re struggling with high interest rate credit card debt:
- Do a credit card balance transfer so you can pay off the debt interest-free
- Consolidate the debt with a low-interest personal loan
- Enroll in a debt management program through a credit counseling agency
The first two can be done on your own in the right circumstances. They both require a high credit score and have certain limitations. But you can save thousands with reduced or eliminated interest charges. With the last solution, you enlist the help of a team to eliminate your debt.
This option offers more flexibility; you can have a low credit score and still qualify, as well as repay larger volumes of debt. You still save thousands in interest charges and can even include other types of unsecured debt, such as medical collections and payday loans.
Kelly from Worcester, MA
Consolidated Credit has turned my life around!!! With one last payment left, I will finally be debt free!!
Where she started:
- Total unsecured debt: $21,094.00
- Estimated interest charges: $11,897.64
- Time to payoff: 12 years
- Total monthly payments: $843.76
After DMP enrollment:
- Average negotiated interest rate: 3.32%
- Total interest charges: $1,347.91
- Time to payoff: 4 years, 7 months
- Total monthly payment: $408.00
As a credit counseling agency, Consolidated Credit can help you enroll in a debt management program. But before that, our certified credit counselors can help you review all your options for relief. Feel free to research more below or you can request a free debt analysis.
3 options for debt relief
Option 1: Do a credit card balance transfer so you can pay off the debt interest-free
Credit Limitation: This option only works if you have good credit; excellent credit is better. Balance transfer credit cards offer 0% APR on balance transfers when you open the account. An excellent credit score means you qualify for the longest 0% APR introductory period possible. Some cards have promotions that run up to 18 or 24 months. That gives you up to two years to pay off your debt interest-free.
Be Aware of Fees: Balance transfers always involve transfer fees, even when you have 0% APR. You pay a fee for every balance you transfer – anywhere from $3 to 3 percent.
How It Works:
- You open a balance transfer credit, qualifying for rates and terms based on your credit score
- Then you transfer the balances from your existing accounts to the new account with fees added.
- You have a set number of months to pay off your debt with no interest charges.
Make sure to calculate carefully to ensure you eliminate the balance before the clock runs out. If you can, this will give you the biggest cost savings, because there are no interest charges. Otherwise, the interest rate on your debt could be even higher than it was originally.
Option 2: Consolidate the debt with a low-interest personal loan
Credit limitation: Like a balance transfer, a personal debt consolidation loan is usually only a viable solution for consumers who have a good credit score. The higher you score, the lower the interest rate you can qualify for on the loan. APR of 5% is ideal, but anything below 10% may be enough to provide the relief you need. If you can’t qualify for a rate below 10%, look for other options.
How It Works:
- Check rates with your bank or credit union, as well as other financial institutions and online lenders. Your goal is to find the best rates and terms.
- Apply for the loan that fits your needs. The lender bases your approval on your creditworthiness.
- Once approved, you use the money you receive from the loan to pay off your debts; in some cases, the lender will send the money directly to your creditors.
Essentially, you use the money from the loan to pay off your credit card balances and other debts. You can pay off things like medical bills, too.
When using this option, you want a loan with a term of five years or less. Any more than that means your total repayment costs will be too high. Just keep in mind that a shorter term means higher monthly payments. Calculate carefully to make sure you can afford the payments.
Option 3: Enroll in a debt management program through a credit counseling agency
The benefit of professional help: A debt management program is the solution you use if you can’t make progress on your own. If you don’t have good credit or you’ve missed some payments, your creditors may be resistant to working with you. Having the help of a credit counseling agency means you get a team of negotiators on your side. That makes it easier to craft a repayment plan that your creditors will actually accept.
How It Works:
- First you talk to a certified credit counselor to review all your options. The counselor makes sure a debt management program is the right solution; otherwise, they can direct you on where to go.
- If debt management is the right choice, they can help you enroll. Together, you find a monthly payment that works for your budget.
- Then the counselor calls each of your creditors to get them to sign off on the adjusted repayment schedule.
- They also negotiate to reduce or eliminate interest charges, as well as to stop future penalties.
Here’s one story of how a debt management program helped one of our former clients find relief:
If you’re feeling uncertain about enrolling in a debt management program, you’re not alone. Many clients who successfully complete the program tell us they were unsure about signing up at first.
Take this client, for example. She came to us with over $24,000 in credit card debt. She was worried that the debt management program might be too good to be true, because she’d used other companies in the past but they only made her situation worse.
But with the help of her credit counselor, she worked out a plan that got her out of debt in just 3 years. When she saw her credit card balances going down, she knew she made the right decision. With the money she’s saving, she plans to make a great down payment for a brand new car. And she looks forward to not stressing about how she’ll be able to afford the payments.
Debt relief options you want to avoid
The three options outlined above are not the only options out there. There are other ways to find debt relief – we just don’t recommend them. At Consolidated Credit, we promote a “do no harm” strategy when it comes to debt relief. In other words, your debt solution should not put you in a worse position that when you started.
Each of the solutions above – when used correctly – can eliminate your debt without causing credit damage or making your financial situation worse. Other solutions can decrease your credit score or negatively impact your long-term financial plan.
For instance, you can:
- Use a home equity loan to pay off debt. However, this puts you at an increased risk for going into foreclosure. If you miss payments, you could lose your home.
- Tap into your 401(k) or IRA, but you may face early withdrawal penalties. It also drain funds in savings that you need later in life to retire on time.
- Settle the debt for less than you owe, but this will damage your credit score. You may also be required to pay income taxes on your next tax filing for the amount you settled.
Good Ways to Find Debt Relief versus Bad Ways to Find Debt Relief
The right debt relief solution will help you reach zero without creating additional risk or damaging your credit. When it comes to bad ways to seek debt relief, there may be some circumstances where using one of these solutions would be the best option. However, you should exhaust every other option first and only use the bad ways as a last resort to avoid bankruptcy.
|Good Ways to Find Debt Relief||Bad Ways to Find Debt Relief|
|Credit card balance transfer||Home equity loan / Home Equity Line of Credit (HELOC)|
|Personal unsecured debt consolidation loan||Cash-out refinance|
|Debt management program||Use retirement income (401k or IRA)|
|Debt reduction plan||Debt settlement program|
|Interest rate negotiation||Payday loans / cash advance loans|
How to tell that it’s time to seek debt relief
Credit card debt sucks. So much so that we made a commercial about it.
Narrator: When you have credit card debt, the Debt Suckers Hi-Rate and Hi-Pay are everywhere.
Hi-Rate: They’re making another minimum payment
Hi-Pay: Great! Most of the money goes to us
Narrator: One call to Consolidated Credit can get the Debt Suckers off your neck
[On-screen Text] LOWER YOUR RATES
Hi-Rate: They’ll lower his rates!
[On-screen Text]: ONE LOW PAYMENT
Hi-Pay: And consolidate his bills into one low payment. Consolidated Credit drives us batty!
Narrator: Call Consolidated Credit now
Hi-Rate: Coz debt sucks!
[On-screen Text] Consolidated Credit: When debt is the program, we are the solution. Call now: 1-888-599-0737
You need to act if you want to find relief!
Sometimes, we just get resigned to trudging forward, even if we’re not really getting anywhere.
Here’s a simple truth: Minimum payment schedules were never designed to help you get out of debt. Interest charges are a credit issuer’s revenue, which means they’re quite happy to allow you to stay in debt as long as you like.
Thus, minimum payments only pay back a small percentage of what you owe – usually around 2%. It’s more affordable month to month, but the trade off is that you stay in debt for a long time. Many times, if you only make minimum payments you could be paying those purchases off for decades.
And that’s only half the problem. If you run up high balances then even larger payments may not make a dent quickly at such high rates. Depending on your available cash flow and interest rates, it may be impossible to pay off your credit cards efficiently.
Try a simple test:
- Use the debt calculator below to see how long it would take to pay off just one of your big balances. You may want to review your budget to see if there are any expenses you can cut to free up more money for debt elimination
- Enter the balance and your current interest rate; if you don’t know your payment schedule, check your statement or choose 2%.
- Now weigh two other options: Pay the minimum plus a little extra or make a larger fixed payment.
That’s just one debt. Now think, how long will it take to pay all your debts off? If you don’t like the answer, it’s time to find debt relief.
On the other hand, if you still want to try paying off the debt with regular payments, follow the steps below. They will increase your chances for success.
Step 1: Negotiate lower rates with your creditors
A lower rate means more of each payment you make can go towards the debt instead of accrued interest. This does accelerate repayment, especially if you make larger payments.
Your chances of a successful negotiation increase if:
- You’re not behind on your payments
- Your credit score increased since you opened the account
- You’ve been a loyal customer for a number of years
If you are not successful negotiating on your own, then that may be a sign you need the help of professional credit counseling services. Having a team of experienced negotiators on your side with established relationships with creditors can go a long way in making sure you get the results you want.
Step 2: Implement a debt reduction plan
You basically strategically arrange your bills and make the largest payments possible on one debt at a time. You find as much cash flow as possible in your budget by eliminating expenses, then target each debt successively.
We offer resources that describe how to implement an effective debt reduction plan.
More free resources for relief
- Not sure if you need professional credit card debt help? Take this test! Consolidated Credit makes it easy to determine if you need help. Take our simple 3-question test to see if it’s time to call in the experts based on your credit score, debt and budget.
- Compare debt relief programs for other types of debt side by side. Credit card debt may not be the only challenge you face. Learn about debt relief options for other types of debt, such as student loans.
- 5 secrets to spot a debt relief scam. Some companies prey on people in desperate situations. You pay exorbitant fees and then they either don’t help you or they can make your situation worse. Learn to spot these scams and what rights you have if you believe you’re the victim of a scam.