Reduce Credit Card Debt with Limited Cash

What to do when monthly payments can’t reduce your debt fast enough.

Up to this point, we’ve focused on how to reduce credit card debt using larger monthly payments that you make by freeing up cash flow in your budget. We’ve also shown you how to create a strategic repayment structure that helps you pay off your debt as fast as possible while minimizing interest charges.

Still, what happens when your debt load is too high or your cash flow is too low that you can’t pay off your debt in a reasonable amount of time? A good rule of thumb is that you should be able to eliminate your debt within 5 years. If you can’t find a way to do that using larger payments, then you need to find an alternative – and that usually means looking into debt consolidation.

The information below is designed to help you assess your situation so you can decide if consolidation is the right option for you. If you have questions or you’d like a professional debt and budget review, call us at or complete an online application to schedule a confidential consultation with a certified credit counselor at no charge. With the right solution, you CAN be debt free!

Knowing when to say when with debt

As mentioned above, the general rule of thumb in debt elimination is that you should be able to create a plan that reduces your revolving debt load to zero within five years or less. That means you can pay off all your credit cards in-full. Otherwise, you need to find alternative paths out of debt that will help you eliminate your debt faster. If you can’t find the right solution, then it may be that bankruptcy is your best option, but it should only be considered as a last resort. Explore all of your other options first.

So your first stop has to be to your budget to see how much cash flow you can free up for debt reduction. Cut all unnecessary expenses, cancel services you can live without for a while and prioritize necessary expenses to get your budget as balanced as possible for debt reduction. Then hit up your trusty credit card debt repayment calculator to see how long it will take to eliminate debt within your budget.

So let’s say you can only free up $500 per month for debt elimination…

  • If you have $10,000 in total debt at an average APR of 19% then it would only take 25 payments to pay off your debt in-full using $500 monthly payments. You’re out of debt in just over 2 years, so this is a good strategy.
  • Even if you have $15,000 in total debt at 22% APR average, you can still get out of debt in less than 5 years making $500 per month payments. In fact, you’ll be debt free in 44 payments, so it’s actually less than 4 years.
  • But let’s say you have $35,000 of debt total. Even at a lower APR like 15% average, $500 per month is not really going to help. In fact, your minimum payment requirements at the beginning will likely be higher than $500 – closer to $875,* so you’ll be struggling to get ahead of your debt. What’s more, it would take 168 payments – i.e. 14 years to eliminate your debt in-full.

*Note that for these calculations we used a payment schedule of 2.5% of the current balance, which is standard for many major credit cards.

Even if you could cut your budget down to bare bones to make $875 monthly payments, you’d still only be able to pay off your debt in full within 56 payments, which is just under five years (4 years, 8 months to be exact).

So you’d effectively be struggling to eliminate your debt within a reasonable five year time period while going without all of the fun and frills you cut out of your budget for almost five years. It’s the financial equivalent of trying to stick to a crazy crash diet for five years and it’s just as likely to work.

That means in this case – and in other similar cases – traditional debt reduction strategies using larger monthly payments don’t really accomplish what you need. You have concrete evidence showing that you need to find a better solution, which means you move on to debt consolidation options.

How does consolidation help on a limited budget?

With the right debt consolidation strategy, you make arrangements that allow you to pay off your debt quickly in full even though you’re making lower payments each month. It works because you consolidate your debts into a single monthly payment at the lowest interest rate possible. Since you only have one debt with low APR, you’re able to pay off the principal (the original debt owed) faster because less of each payment you make is being eaten up by interest charges.

So let’s take your $35,000 debt and see how fast you can pay it off using each debt consolidation option available. We can also see which one works for getting your payments under $500 so you can actually afford your debt elimination strategy…

Credit card balance transfer

  • If you have an excellent credit score, you may be able to qualify for a balance transfer credit card that offers 0% APR for 48 months.
    • There’s usually a fee for each balance transferred – 3% is standard.
    • So you’re adding $1,050 to your debt by transferring it to the new card, meaning you have $36,050 to pay off
    • Here’s where the first issue comes up with this consolidation method – since the $35,000 debt is still on a credit card, then the minimum payment requirement (which is based on how much you owe) would still be $875 to start out
    • However, if you made $875 per month then by Month 41 you’d have paid off $35,875, leaving you $175 to pay off with the 42nd payment

So while the payment may be tough to make at first this would be a viable option if you can find the funds to make it work, but things will be tight when you first transfer the balance and one emergency could send you into an even worse financial tailspin since your budget is accounted for down to the last penny. It would be recommended to consider other options that work better for your budget.

Personal unsecured debt consolidation loan

  • With a good credit score, let’s say you can qualify for an unsecured personal debt consolidation loan
  • You’d want a loan for $35,000 with a term of 5 years (60 payments)
  • At 5% APR, your monthly payments would be $660.49 but you’d pay off your debt in exactly five years.

Again, the monthly payments are higher than what you wanted to target at $500, but they’re better than the starting minimum requirements on the credit card balance transfer option. The only difference is that with a credit card the payment requirements gradually decrease over time, whereas the loan payments will stay fixed at $660.49 for the full five years. This option then also has the risk that the monthly payments on your consolidated debt would be stretching your budget thin, so one emergency or unexpected expense could tip things over into financial distress.

Debt management program

Debt management programs allow you to consolidate debt through credit counseling agency that negotiates with creditors on your behalf. The benefit is that you can usually get lower payments and interest rates even if you have bad credit because you’re going through the agency instead of trying to do things on your own.

  • On a debt management program, total monthly payments are typically reduced by 30% to 50%
  • So if your minimum payment requirement is $875, then the payments on your consolidated debt would be between $262.50 and $437.50
  • Now you’re within a comfortable monthly range where you can afford your debt repayment strategy while still leaving breathing room in your budget
  • On the program, most clients are out of debt in less than five years and interest rates are typically reduced to less than 11% or eliminate completely – the credit counseling staff negotiates with each of your creditors individually.

So now you’ve found an option that allows you to pay back everything you owe even with limited cash flow in your budget. The credit counseling staff will also give you the benefit of helping you balance your budget as part of the service, meaning you’ll have cash flow available even after your monthly debt payment to cover any emergency or unexpected expense.

Is a debt management program always the best option?

Not necessarily – and any legitimate credit counseling agency should be upfront about that. If you have more money available, along with a high credit score, then either one of the do-it-yourself consolidation options may be better.

For instance, if you have $1,000 available for debt elimination each month, then either of the two DIY options may work:

  • On the credit card balance transfer, you’d have the debt paid on in-full by the 37th payment OR you could pay just $751 per month to eliminate the debt in-full within 48 months while diverting the rest of that fund into savings so you can establish a financial safety net for your budget.
  • On the personal debt consolidation loan, you could set up a 42-month loan at 6% APR for $35,000. Your monthly payments would be $925.97, and the extra cash could be used to pad your budget with savings.

Choosing the right path out of debt is always highly personal – the solution that worked for a neighbor may not work as well for you, while a solution they rejected may be fit your budget and lifestyle perfectly. This means it takes careful analysis to determine the best option for your finances today. You can do this yourself, or you can reach out to weigh your options with a certified credit counselor for free. Remember, certified credit counselors are trained to cover ALL your bases, instead of simply pushing you into a debt management program. So you can get an impartial expert opinion and then go wherever you need to go to use that perfect-fit solution.