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Don’t Drown in Credit Card Debt

Posted by Advocate Debt Relief Team

2 years ago / April 4, 2022

Imagine being on a boat under clear blue skies. The cool ocean beckons as sweat runs down your face. Refreshed after a head first dive you notice one thing missing, the boat. Barely treading water, no land in sight, panic sets in. Credit card debt can feel a lot like this scenario.

Credit cards can be a slippery slope. Great for unexpected emergencies, but easy access to money we don’t have can be tempting. Overspending and high-interest rates can lead to a downward spiral that leaves us stranded at sea without a life raft.

5 Strategies to swim ahead

The key to eliminating credit card debt is two fold: know how it works and make a sustainable plan. When you craft a plan, keep in mind these strategies that will keep you afloat and make forward progress.

Negotiate with creditors

Before you pick up the phone, understand some of the common settlement options and which one might best fit your situation. 

  • Workout agreement — Allows you to ask the credit card company to reduce the minimum monthly payment, lower your interest rate, or remove past late fees. If money is coming in, but not fast enough to keep up with those high payments, this could be a viable option.
  • Lump-sum settlement — In the event you have access to excess cash, you may be able to have the credit card company reduce your debt only to the principal you owe.
  • Hardship plan — This plan is designed for temporary setbacks like the loss of a job or serious illness. The credit card company might lower your minimum payment, interest rates, and fees.

One at a time

Target one credit card at a time, but make sure you pay at least the minimum on each card. If you don’t make those minimum payments it can impact your credit score and cost a lot more in interest.

One of the fastest ways to get rid of the debt is to take the debt snowball approach. It’s a great way to gain momentum and lessen the panic associated with high interest credit cards. The strategy is to take the smallest balance, regardless of interest rate, and pay it off as quickly as possible. Still making the minimum payments on the other cards, swim with all your might to make extra payments on the smallest one. When that bill is paid off, rinse and repeat.

Pay extra

Easier said than done, but paying over the minimum has a number of benefits. For one, every dollar paid over the minimum payment goes toward the balance. The ratio of credit card balance to credit limit is called credit utilization — a big part of your credit score. The lower the balance relative to the credit limit, the better the score.

Another tactic is making multiple payments, over the minimum payment, per month. It might be worth looking into how your credit card calculates your finance charge, but it’s possible to save on interest this way. To reduce the hassle, set up automatic direct payments with your bank account.

Consolidate, if appropriate

One simple payment is a lot easier to manage than multiple payments, all with different interest rates and minimum payments. There are a number of methods to consolidate credit card debt, but it’s important to be sure it’s the right move for your situation.

  • Credit card refinancing — This transfers the debt to a credit card that charges no interest for a period of time, typically 12 to 18 months. It requires a good credit score and it’s important to be aggressive with paying the balance within that promotional period or you could end up in a worse financial position as all the accrued interest will be added to your balance.
  • Credit card consolidation loan — An unsecured personal loan with a fixed interest rate could be a good option. It can be difficult to get one with bad credit and the interest is extremely high.
  • Home equity loan — Homeowners can get a lump-sum loan with a fixed interest rate to pay off the credit cards, if there is equity in the home. Don’t default on those payments because you could lose your home if you do.
  • 401(k) loan — This is a more risky option because it could reduce your retirement fund. The benefit is that it won’t show up on your credit report and they’re usually lower interest rates than unsecured loans.

Work With A Debt Relief Company

A debt relief company is certified and trained in the areas of consumer credit, debt management, and budgeting. They will discuss your financial situation and help with a personalized plan to get on the right track.

Don’t allow yourself to drown in a sea of credit card debt. It can feel lonely and quite frankly terrifying, but it doesn’t have to be. Take some time to weigh the options, partner with a professional if necessary, make a plan, and swim forward.

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Filed Under: Debt Relief