- 6 min read
- There are ways to get out of Credit Card Debt, no matter your financial position.
- If you do not have a strong cash flow look into debt settlement or a debt management plan.
- Learning how to get rid of credit card debt is a big first step to financial freedom.
How to Get Rid of Credit Card Debt
From Easy to Hard:
Wouldn’t it be nice if you could just sweep your credit card debt under the rug? Well, doing that would be as effective as sweeping the dirt in your house under the rug. Unlike a little dirt, credit card debt harms your financial health, if you let it pile up. Instead of making ends meet, saving for a rainy day, or putting money in long-term investments, your money goes to paying minimum payments on your credit card bills.
For some, it is relatively easy to get rid of credit card debt. For others, it takes strenuous efforts. The "how to get rid of credit card debt" depends on your financial situation; but, to stay out of debt, make it your top priority to maintain healthy financial practices.
5 tips on How to Get Rid of Credit Card Debt
Listed below are some quick tips on how to get rid of credit card debt. They go from "easy" steps, for people with strong financial means, to difficult steps, for people stressed with financial problems.
- Pay off debts quickly, from assets or cash-flow.
- Take out a loan to consolidate your debt, with a cash-out mortgage or personal loan.
- Sign up for a credit counseling and a debt management program.
- Enroll in a Debt settlement program.
- File for Bankruptcy.
# 1: Take advantage of Bills.com articles regarding any of the solutions that seem appropriate to you.
Pay off Quickly
If you are in a strong financial position, then you can get rid of credit card debt fast. Your two options are:
- Use your liquid assets- Use cash or liquidate an investment, to pay off the whole debt. Don’t immediately cancel your credit cards, after you pay them off, as this negatively affects your credit score.
- Accelerate your payments- Pay off your credit cards faster. Avoid minimum payments. Set a constant monthly payment on all your credit card payments, and then add an amount to your cards, either using the snowball (pay off lowest balance first) or avalanche (pay off highest interest first) technique.
Take Out a Loan
If you have a good credit score, then consider taking out a loan to pay off your credit card debt. An effective loan consolidation will either save you money, by taking a lower interest loan, or create an easier payment schedule. Two types of loans are:
- Home Equity Loan (HELOC) or a cash-out refinance mortgage: This is a good solution to get rid of credit card debt, if you own a home and have a strong equity position. However, remember that you are jeopardizing your home, if you ever default on your loan.
- Unsecured personal loan: Unsecured loans at a good rate are difficult to find. However, if you have good credit, shop around for a personal loan that has better terms than your credit card debt. Set up a loan with a manageable payment schedule that gets you out of debt as quickly as possible.
Be careful not to take out a personal loan that only gets you deeper in debt. This is especially true for people with bad credit. There are many advertisements that make it seem like a personal unsecured loan will solve your debt problems. They may give you a quick injection of cash, but they are not a good long-term solution.
Sign up for Credit Counseling and Debt Management Program
If you can barely afford to make your minimum payments, then consider credit counseling (CC) and a debt management program (DMP). This plan is especially appropriate if you have good credit and wish to maintain it. In general, you will have to stop using your credit cards and cannot take out new ones.
A CC counselor analyzes your financial situation and helps you set up a personal budget. The DMP works by negotiating with your credit card holders lower interest rates and lower fees. You make one monthly payment to a debt management company that makes the monthly payment to the credit card companies.
One great advantage of this program is that you have professional help, which reduces your stress and helps you get on a plan to get rid of your credit card debt. Doing it alone is possible, but difficult.
Quick tip #2
Contact one of Bills.com's pre-screened debt providers for a free, no-hassle debt relief quote.
Enroll in a Debt Settlement Program
If you cannot afford your minimum payments, then a debt settlement program is a good alternative. A good debt settlement program will include a free consultation that includes an analysis of your situation and advice on how to get rid of your credit card debt.
A debt settlement company negotiates with your creditors, attempting to reach a settlement for less than the amount you owe. You make monthly payments to a bank account that stays in your control. When a settlement is reached, your credit cards are paid off and the debt settlement company collects its fee.
The main advantage of a debt settlement program is that it gets rid of your credit card debt for less than you owe. However, since you choose to go delinquent on your payments, you may face collection calls and letters, as well as a drop in your credit score.
File for Bankruptcy
If you cannot afford your minimum payments, and do not have other solutions, then filing for bankruptcy can be the best solution. There are two types of personal bankruptcy, a chapter 7 bankruptcy and a chapter 13 bankruptcy. A chapter 7 bankruptcy liquidates your credit card debt, however is difficult to qualify for. A chapter 13 bankruptcy reorganizes your debts into a payment plan, usually lasting around 5 years, and helps protect some of your assets.
Any bankruptcy has to be approved by a court and overseen by a court trustee. If you are considering bankruptcy as a solution to your question of how to get rid of credit card debt, then consult with a lawyer specializing in bankruptcy law.
How to get rid of credit card debt -Your first step not the last one
No matter what your financial situation, deciding to get rid of credit card debt is a big decision. It can lead you to financial freedom and building your net worth. The first step, often the hardest one, is to choose the program that is right for you. Bills.com Debt Coach will help you choose a solution best fitted to your situation.
Don’t make this your last step. Once you choose a solution, remember to maintain good financial practices: maintain a personal budget, save money, and build up your retirement fund.
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in New Hampshire, 18% have student loan debt. Of those holding student loan debt, 5% are in default. Auto/retail loan delinquency rate is 2%.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.