How to Get Rid of Credit Card Debt
Credit card debt can be useful for borrowers seeking to make purchases with deferred payments over time. The use of a credit card allows us to build a good credit score and help us increase our purchasing power. This type of debt does carry some of the industry’s highest interest rates. However, credit card borrowers do have the option to pay off their balances each month to save on interest over the long term.
When your debt gets out of control, it becomes a burden that could cause physical and emotional stress. Although it might feel overwhelming, you can repay what you owe one step at a time. A reliable Oak Brook Bankruptcy Attorney can help you know and understand the different ways on how to get out of your debt. This article will give you tips on how to get rid of your credit card debt.
- Choose the best repayment strategy
- Consider debt consolidation
- Work with your creditors
- Seek help
Choose the best repayment strategy
Choosing the most appropriate repayment strategy can help you live a debt-free life. If you want to settle your credit card debt in the fastest way possible, you may consider the following methods:
- Pay more than the minimum monthly payment – It’s almost always a good idea to pay more than the minimum on your credit card bill. A credit card issuer typically allows a minimum monthly payment (2%-3% of the balance), to help you make monthly payments on time. Consequently, making minimum payments can keep the credit card account in good standing, but this is usually an expensive way to manage the credit card account. Why? Because the balance at the end of every month will accrue interest, making it even more difficult to pay off your balance. Furthermore, paying more than the minimum will reduce your credit utilization ratio—the ratio of your credit card balances to credit limits. (Credit utilization ratio makes up approximately 30% of your overall credit score.)
- Debt snowball – The debt snowball method is a debt-reduction strategy where you pay off the debt in order of smallest to largest, gaining momentum as you eliminate each remaining balance. Like a snowball rolling down a hill, you’ll progressively make bigger payments, and eventually eliminate your debt. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment. You focus on your loans by amount, prioritizing the smallest one first. This method can be more costly but yields faster results—valuable for maintaining motivation.
- Debt avalanche – With the debt avalanche strategy, you pay off what you owe by prioritizing loans and credit card balances with the highest interest rates. It involves making minimum payments on all debt, then using any extra funds to pay off the debt with the highest interest rate. Using this method will save you the most in interest payments. It is considered to be cheaper and faster compared to the debt snowball method.
- Automate your payments – Forgetting to make a credit card payment might seem like a simple mistake, but it can lead to fees and interest and even lower credit scores. To avoid these consequences, you can automate your credit card payments. Automating your credit card bill means scheduling a recurring payment that automatically withdraws the same amount from your bank account on the same day every month.
Consider debt consolidation
If you’re dealing with a manageable amount of debt and just want to reorganize multiple debts with different interest rates, payments, and due dates, then debt consolidation might be a good option for you. Debt consolidation rolls multiple debts, typically high-interest debt such as credit card bills, into a single payment. This will help you reduce your total debt and reorganize it so you can pay it off faster.
- Get a 0% interest, balance-transfer credit card – Credit card balance transfers are typically used by debtors who want to move the amount they owe to a credit card with a significantly lower promotional interest rate and better benefits. This option allows you to transfer all your debts onto a new card that offers a long 0% introductory period (preferably 15-18 months), and pay the balance in full during the promotional period. You’ll make one simple interest-free monthly payment.
- Get a fixed-rate debt consolidation loan – Getting a fixed-rate debt consolidation loan can help you pay off your credit card debts. You can use the loan to repay your debt and then pay back the loan in installments over a set term. Though it’s mandatory to pay interest, the interest rate for a personal loan is lower than that of a credit card.
Work with your creditors
If you’re facing financial problems that are making it seem impossible to pay off your credit card debt, negotiating with your creditors to reach a settlement agreement can be an option to consider. A qualified Oak Brook Bankruptcy Attorney can help you deal with your creditors, explain your financial dilemma, and come up with an agreement. If you have a good payment history, your credit card issuer may be eager to agree with modified payment terms or offer a hardship program. Before negotiating with a credit card company, you should get familiar with the types of settlement options that are typically available to debtors.
If your credit card issuer chooses to offer a hardship program, you may be able to arrange for lower minimum payments, interest rates, and fees, and you may be able to suspend payments without penalty for a limited period. This may be a good option for you if the reason you’re having trouble paying credit card debt is due to illness, job loss, natural disaster, or another temporary hardship.
If you’re finding it difficult to control your debt, you might need to consider the following debt relief options – debt management plan or bankruptcy.
- Debt management plan – This plan requires you to work with a nonprofit credit counseling agency. Your counselor will negotiate with your creditors to convince them to reduce your interest rates, lower your monthly payments, or waive their late fees. Under a debt management plan, you’ll make a fixed monthly payment to the credit counseling agency instead of paying your creditors directly. The counseling agency will disburse the money to your creditors on your behalf based on the payment agreement.
- Bankruptcy filing – Declaring bankruptcy can help you pay off your debts. Filing Chapter 7 bankruptcy can wipe out your unsecured debts, especially credit card debts, while Chapter 13 bankruptcy gives you a chance to reorganize your debts and devise a repayment plan that will last for 3-5 years. However, bankruptcy will remain on your credit report for 7-10 years and can affect your credit score.
- Debt settlement – Debt settlement is an agreement between a lender and a borrower to pay back a portion of a loan balance, while the remainder of the debt is forgiven. Debt settlement allows a creditor to accept less than the amount you owe. You have the option to hire a debt settlement firm to negotiate and reach an agreement with creditors on your behalf.
The Role of a Bankruptcy Attorney
Paying off debt is not an easy task. You need to know the different options that you have to help you wipe out your debts – particularly credit card debts. If you’re behind your credit card payments due to financial hardship, you can negotiate your credit card debt in various ways. If you aren’t sure which approach is best for your situation, do not hesitate to consult our experienced Oak Brook Bankruptcy Attorneys at Cutler & Associates, LTD. Our lawyers can help you determine the best debt-relief option for you depending on your current financial situation. We will help you stay out of debt and obtain financial freedom.