- 7 min read
- Learn about different solutions to credit card debt.
- The right solution for you depends on your financial situation.
- Remember, once you get out of debt, maintain good spending and budget habits.
How Can I Get Out of Credit Card Debt Quickly?
You are not the first one to ask, "How can I get out of credit card debt?" Credit Card debt is huge, ranking as the third largest debt in the USA, behind mortgages and student loans.
There are different reasons for getting into credit card debt including poor spending habits, loss of income (unemployment, less overtime), and sudden emergency costs (medical expenses, auto repairs). A convenient solution for a lack of money to pay for a bill is to charge it. Before you know it, you maxed out your credit cards AND you are paying more of your monthly income to service your debt.
Here are three steps you need to take to get out of debt quickly:
- Look at your budget and your financial situation.
- Match the possible solutions with your situation.
- Learn more about each possible solution to your credit card debt.
How to Get Out of Credit Card Debt - Matching Solutions With Your Financial Situation
The best solution will depend on your financial situation, including these factors
- Your credit score
- Your cash flow (income versus expenses)
- Your net worth
The chart below shows possible debt relief solutions for credit card debt, based on four possible financial situations.
|Cash Flow||Assets/Net Worth|
|Can't afford minimum payment||Bankruptcy, Debt Settlement||Cash-out Refinance|
|Can afford more than minimum payments||Credit Card payment tactics, Credit Counseling and Debt Management Program||Pay off debt, Personal Loan, Credit Card Payments Tactics, Cash-out Refinance|
Use Bills.com Debt Coach to help you find the best debt relief strategy.
How to Get Out of Credit Card Debt - An Explanation of Strategies
The chart above shows different strategies on how to get out of credit card debt, depending on your financial situation. Sometimes more than one strategy may be appropriate.
Bills.com offers in-depth articles about each of the different solutions. This article gives you a brief explanation, so you have a basic understanding of the possible solutions, before you choose the best way for you to get out of credit card debt.
Credit Card Payment Tactics
Time to be Debt-Free: How fast you can get out of debt depends on your ability to come up with extra funds (either from assets or monthly income), that can be used to pay down your debts. (Once your budget is set, work on saving money and applying as much as you can to your credit card).
Avoid making minimum payments. If you pay only your required minimum payment, usually between 2-4% of your outstanding balance, you stretch out your payment schedule and greatly increase your costs. Check out the Bills.com minimum payment calculator for more information.
Two possible solutions that will help you pay off your credit card debt quicker, are based on applying any amounts over the minimum payment to specific credit cards.
- Snowball: This strategy calls for paying off the lowest balance first and then working your way up the line.
- Avalanche: This strategy calls for paying off the highest interest credit card first and working your way down the line.
Another solution is to do a credit card balance transfer. This means taking high interest credit cards and transferring the balances to the new card. Remember to read the small print. Balance transfers have fees and the low, introductory interest rate lasts only a limited time.
Credit Counseling and Debt Management Plan
Time to be Debt-Free: It takes about five years to finish a Debt Management Plan.
Credit Counseling (CC) and Debt Management Plan (DMP) will help you get rid of your credit card debt by setting up with you a financial plan and budget, and then reducing your interest rate and fees. You pay off 100% of your credit card debt, and your credit will be hurt moderately during the DMP (lenders may not be willing to offer new loans). You make one monthly payment to the DMP Company, which in turns funnels it to your creditors. DMPs have two types of fees. Enrollment fees range from $25 to $75 per month, depending on the state. Monthly fees should not be more than $50.
Time to be Debt-Free: A Debt Settlement plan takes about 2-4 years to complete.
Debt Settlement is a program whereby you pay much less than you owe. In general, you have to show some sort of financial hardship to qualify. In debt settlement, you choose to stop making monthly payments to the credit card companies. You will make payments to a bank account that stays in your control. The funds are used to pay for the reduced-balance settlements the DS company negotiates for you. If you choose the right DS firm, you won't pay a fee for their services until after an account is settled. Your credit score will be hurt badly and you run the risk of aggressive debt collection, but debt settlement can resolve your debts at the lowest costs while avoiding bankruptcy.
Time to be Debt-Free: Chapter 7 bankruptcy generally takes about 3-6 months to complete. Chapter 13 takes about five years to complete.
If your financial position is very weak, and you have built up considerable debt with no means of paying it off, then consider bankruptcy. This can rapidly get you out of your credit card debt. Bankruptcy severely hurts your credit score and ability to take out new credit. Depending on the level of your hardship, you may qualify for a chapter 13 or a chapter 7 bankruptcy.
A Chapter 13 bankruptcy is a restructuring of your debts, as approved by a bankruptcy court and overseen by a court trustee. In general, the Chapter 13 bankruptcy includes a three to five year payoff schedule.
A Chapter 7 bankruptcy is a liquidation bankruptcy, where you sell off your assets to pay your debts, subject to state exemptions. A Chapter 7 bankruptcy is very difficult to qualify for, since the most recent federal bankruptcy reform went into effect in 2005. A Chapter 7 bankruptcy will totally get rid of your credit card debt, if you qualify.
If you wish to pursue a bankruptcy to get rid of credit card debt then seek help and advice from a bankruptcy lawyer.
Loans: Cash-out Refinance Personal Loans
When looking for ways to get out of credit card debt, taking out a loan is a popular option. You pay off your credit card debt immediately, transferring it for a cheaper source of money. If you choose this option, AVOID running up new credit card debt.
This is a good option for people with a solid financial base, including a strong equity position in their house, stable income, and strong credit score. Personal loans can be very expensive and defaulting leads to aggressive tactics. So avoid payday loans, and other "easy to find" personal loans.
Cash-out Refinance: If you have equity in your house, which is a problem for many borrowers today, then you can look into a cash-out refinance. Since the mortgage meltdown of 2008, lenders have tightened underwriting criteria. You need strong income and credit. Refinancing can lower your interest rates, but it often increases the time it takes to pay off your debts. Try to match your monthly payment with your cash flow. Make the period of your loan match the amount you can afford to pay each month. See the Bills.com mortgage affordability calculator to help you figure out how much you can afford.
Personal Loans: Check with your bank to see if they offer a personal loan to consolidate credit card debt. These loans will allow you to stretch out the payment schedule into affordable payments. The interest rate will be higher than a secured loan, but it might be cheaper than what you pay on your credit card debt.
The credit card debt cycle can be very tough to break. Getting out of credit card debt and stay debt free, requires creating and maintaining a personal budget. Bills.com offers you a detailed budget guide. I recommend that you use it.
No matter what your situation is today, you can take steps to improve your financial situation. The question of "How to get out of credit card debt quickly" becomes easier to deal with as you follow the steps provided in the article. For some, it will be a quick and easy process. For others it will take more effort and be a longer and more difficult process. Either way, if you make a plan and stick to it, you can accomplish your goals and become debt free.
Did you know?
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Housing debt totaled $11.71 trillion and non-housing debt was $4.45 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Each state has its rate of delinquency and share of debts in collections. For example, in West Virginia credit card delinquency rate was 5%, and the median credit card debt was $410.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.