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How To Get Out Of Major Credit Card Debt

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What Happens If I Dont Pay Off My Credit Card Debt

How To Get Out Of Credit Card Debt

If you don’t pay off your credit card debt, it can cost you money and damage your credit score.

First, your credit card company will charge you interest every month. The more debt you have, the more you’ll pay.

Also, as your credit card debt increases, your credit score will suffer. This is because of a number known as your credit utilization ratio. It measures how close you are to maxing out your credit cards. If you’re not too far from your credit card’s limit, your credit score will be lower.

It’s best to keep your to 20% or less. That means if you have a credit limit of $1,000, you should only charge up to $200 on that card to keep a healthy credit score. Americans overall use 23% of their available credit limits. And of course, those in debt often use much more.

If you miss any payments, you’ll likely incur late fees. Payments that are late by 30 days or more can affect your credit score. After 60 days, your card issuer can raise your interest rate to a higher amount .

If you still haven’t paid after 90 days, the card issuer might close your account and send the debt to a collection agency. This is known as credit card delinquency. Unfortunately, isn’t uncommon. About 9.1% of credit card balances were delinquent by 90 days or more in the first quarter of 2020.

Our credit card repayment calculator below can help you determine how much interest you may pay over time and when you can expect to pay off your debt.

Sort Your Priorities And Drop Some Expenses

Okay, its time to get a little radical. Are you ready?

Look back at that budget. You trimmed it up. Now cut off some branches. It might hurt, but if you can take certain expenses out of your budget completely, thats the real money saver.

What extras can you live without in this season? Its not goodbyeits see you later.

Here are some common unnecessary budget lines you can delete : restaurants, entertainment, subscriptions you dont use regularly, cable, trips to the coffee shop. Be honest with yourself and your budget. What things can you live without while youre paying off that credit card debt?

You arent cutting all the fun. Just get creative with budget-friendly fun and rewards! Heythese sacrifices right now will make a huge difference for your future.

Downsides Of Credit Card Debt

One: The potential to fall into further credit card debt is relatively high. The temptation to overspend is always lurking in the shadows since youâre borrowing the credit companyâs money to make purchases instead of using your own, as you would with a debit card.

Two: Credit card interest charges are high. The average credit APR interest rate is around 18 or 19 percent, compared to a low rate of three to seven percent for car loans or mortgages.

Three: Deferred interest. Extending on point two, many card retailers offer customers a zero percent introductory period. While this can be helpful in the beginning, youâre simply postponing those heavy credit card payments. If you donât pay off your entire balance by the time the introductory period comes to an end, youâll face a penalty.

Four: Fraud. If your card is lost or stolen and fraudulent purchases push you over the edge into debt, you can dispute those charges. Most credit cards offer some form of fraud protection, but the process of investigating the fraud and scrubbing it from your credit report can be troublesome and takes time to resolve.

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Be Consistentand Find A Way To Stay Motivated

What advice does Williams have for people who are looking to pay off their own credit card debt? Be consistent! While your debt payoff story will have its ups and downs, what makes it work is you continuing to plow through those setbacks. A great book called The Compound Effect by Darren Hardy helped me realize that its about doing a little bit of something every day to hit your goal. It isnt the rush out the gate thatll get you to the finish its consistently doing one or two steps every day, which adds up over time to get you to the end.

Since debt repayment is often more of a marathon than a sprint, its a good idea to find a way to stay motivatedeven during setbacks. Williams suggests connecting with other people who are also trying to get out of credit card debt, and sharing your struggles and successes as you work toward your goal.

Find support and motivation to help you keep going, whether its books, blogs, podcasts, friends or a Facebook group. Being surrounded by like-minded folks with similar goals makes a world of difference!

Stop Using Your Credit Cards

Infographic: Dig Out Of Credit Card Debt

If you want to get out of credit card debt, its time to break up with your credit cards. And you dont have to have a nice dinner or a big conversation with them. Just put them on the table and say, Its not meits you . . . Youre bad for me, my finances and my future. Goodbye. And never look back.

If you stop using credit cards, youll never run the risk of having a credit card balance. Ever. Again. Start using a debit card and cashyour own real moneywhen you pay for things.

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If Youre Using Your Card For Business

Whether youre a veteran business owner or an up-and-coming freelancer, you might benefit from a business credit card. These cards are available from several major issuers, and they usually provide rewards for business-focused bonus categories, as well as helpful business-related benefits.

And thats on top of the fact that business credit card issuers generally report positive activity to the business credit bureaus, which can help you establish and build your business credit scores.

The application process for these cards isnt terribly different from most consumer cards. Youll have to fill out a standard form that includes some personal identifying information, plus information about your business, usually including your Employment Identification Number .

And while business credit and personal credit are separate, youll almost certainly still have to provide a personal guarantee and submit to a personal credit inquiry before youre approved for a business credit card.

Major Small Business Credit Cards

  • Additional Cards Annual FeeN/A
  • Foreign Transaction Fee2.7% of each transaction after conversion to US dollars

The information related to The Blue Business® Plus Credit Card from American Express has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.

  • Additional Cards Annual FeeN/A
  • Foreign Transaction FeeNone

This 4X rate is available for the first $150,000 in combined purchases every year.

What Best Describes Your Situation

Everyones situation is unique. When it comes to debt relief programs, theres no one method that works for absolutely everyone. Check out these common debt scenarios and find the one that best matches your current situation:

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Simplify Your Debt So You Can Shrink It

Kick off your debt-free journey by consolidating your unsecured debts. This doesn’t reduce the overall amount you owe, but it gathers many of those bills into one single debt hopefully with a lower average interest rate. What’s more, consolidating your debt can improve your credit score.

Here we present three options for debt consolidation:

  • Apply for a personal loan
  • Apply for a balance transfer credit card
  • Apply for a home equity line of credit

Personal loan

Personal loans are offered by banks, credit unions and online lenders. The loans are unsecured, and you pay them back in installments over a period of two to seven years.

You might look into Even Financial , a personal loan matcher that can get you approved for a $1,000 to $100,000 loan to pay off debt. Checking to see if you qualify will not hurt your credit score.

Note that you might not get a lower interest rate with a personal loan it might be higher than your credit card’s APR. The loans come with fixed rates, and the payments are due monthly. Read the terms carefully and be sure you can afford the payments before signing for the loan.

Balance transfer credit card

Moving your debt to a balance transfer card with a 0% APR is a good way to stop piling up more interest and focus on paying down your debt.

But keep in mind that you may be charged a fee of up to 5% of the amount you transfer.

Home equity line of credit

How To Refinance Credit Card Debt

How to climb out of credit card debt

Weve already mentioned that there are different ways to refinance your credit card debt.

Some, like a balance transfer card, are revolving credit, but at a lower interest rate. Others, particularly loans, also have lower interest and can be used to pay off the cards. You then make fixed payments for a specific amount of time to pay off the loan.

Each method has pros and cons. The best option is the one that works best with your financial situation and saves you money.

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Consider Nonprofit Credit Counseling And Financial Assistance

There are many ways to get help developing a credit card payoff strategy. With assistance from reputable financial experts, you might be able to identify your best budgeting method, learn about how to negotiate with creditors or apply for economic hardship programs to lower some of your bills.

A good place to start is a nonprofit agency. These organizations offer free initial consultations to anyone who needs basic help budgeting or exploring debt reduction options. They can help you view your situation holistically alongside other debt you may have, such as student loans or a mortgage. The counseling agency could also get you on a debt management plan, which is a paid service that aims to reduce your credit card debt. Debt management plans aren’t right for everyone, thoughâmore on that later. Find a local credit counselor through a national network like the National Foundation for Credit Counseling.

Check If You Can Get Pension Credit

If you’re less well off, there is help available to you to boost your state pension. This comes in the form of pension credit.

Pension credit is awarded to you based on your earnings and tops up your basic state pension.

Around four million people are entitled to pension credit but, according to the government, a third of those fail to claim it. Its worth claiming as if youre eligible itll top up your weekly pension to £177.10 if youre single or £270.30 if in a couple.

Find out more: discover how pension credit works and what you need to do to claim it.

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See If Youre Eligible For The Mortgage Interest Support

If youre on certain benefits such as universal credit or pension credit then you may be eligible to apply for Government help to pay your mortgage interest.

The government will pay the interest on up to £200,000 of your mortgage, direct to your mortgage lender. However, they wont make capital repayments. But bear in mind the loan needs to be paid back from equity in your house when you come to sell.

Find out more: to check if you might be eligible and to find out how to apply, Money Helper has a useful guide on the Support for Mortgage Interest Scheme.

Pay More Than The Minimum

Check out these quick tips if you

Lenders charge you interest on your outstanding debts. The longer you take to pay them back, the more money you have to pay in the end. To pay off your credit card debt faster, aim to pay more than the minimum amount that your credit card issuer requires.

Dont believe the myth that leaving a balance on your credit card will help your credit score. VantageScore and FICO have confirmed that it isnt true. 34Doing so will cost you more money in interest and could make it more difficult to keep on top of your payments in the long term.

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Mistake: Not Setting Aside Emergency Savings

According to research, more than half of American consumers dont have enough cash to cover an unexpected expense of $500 or more. Remedy: Its impossible to predict unemployment, car accidents or busted plumbing, which is why every home needs an emergency fund. Experts say put 3-6 months of expenses aside for emergencies. It might take a while to get there if youre focused on paying off debt, but again, it has to be part of your monthly budget. Set aside at least 5% of your income in an emergency fund, at least until you have three months of expenses covered.

Improve Your Financial Education

After reading the classic Rich Dad Poor Dad by Robert Kiyosaki, my views on what liabilities and assets are have changed.

I no longer view cars and a home as assets. If they pull money out of your income column each month, it is a liability.

I like Robert Kiyosakis method of buying assets to pay for liabilities. I was very materialistic in my younger days .

A lot of it had to do with being unhappy with my situation. Relationship-wise, job wise, etc. I sought happiness in liabilities .

After reading Rich Dad Poor Dad I quickly realized what my problem was.

Cashflow Quadrant is another favorite by the same author.

It goes further into what liabilities and assets are and the way businesses handle money. It goes into the tax advantages of being a business owner versus an employee.

If you havent already, read these two books ASAP. If you cant afford them, borrow copies from the library or check used book stores.

Some people have their negative opinions about Robert Kiyosakis money philosophies.

However, if you are in credit card debt, these two books will change your outlook on money, debt , assets, and liabilities.

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Your Credit Card Debt Questions Answered

Your credit utilization ratio measures the amount of credit youre using compared to your cards credit limit. If you dont carry a balance, your credit utilization is 0. A high utilization rate may indicate youll have a hard time paying your credit card balance on time, so a lower utilization rate is better for your credit score. You should aim to have a credit utilization ratio of 30% or less. Anything higher can damage your credit score. Not using your card enough can also affect your credit score because lenders wont be able to measure your creditworthiness.

Accept Your Debt Come To Terms With The Pain

How To Get Out Of Credit Card Debt

Consumer debt just plain sucks. When you are in major credit card debt, it weighs on you each month when you make your payments.

Dont walk around in denial about it. Face up to it and realize you are in debt. Add those card amounts up.

Put it into a spreadsheet and see the actual amount you owe on each card. Add up how much youre paying each month to the credit card companies.

The reality of it is going to be a pain point. Use this pain point to your advantage to make a change in how youre doing things.

The first step out is to know how much you owe.

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Whats The Difference Between Credit Card Networks And Credit Card Issuers

Credit card issuers are usually banks or financial institutions that issue credit cards. Its up to the issuers to decide if youll be approved or denied based on your . Issuers include Chase, Citi, U.S. Bank, Capital One, and more. American Express and Discover act as both networks and issuers.

Check out our in-depth breakdown of for more information!

Use The Debt Avalanche Method

Best if: Youre motivated by long-term interest savings.

With the debt avalanche method, youll focus on paying off your debt with the highest interest rate first.

Heres how it works:

Pros

  • Could save money on interest: Paying down your highest-interest debt first could help you reduce your overall interest charges.
  • Might get out of debt faster: Saving money on interest might help you pay off your debt ahead of schedule.

Cons

  • Could take longer to see results: While paying down your highest-interest debt might help you save money on interest, it could take a while to see any significant results.
  • Might be hard to sustain motivation: If you need to enjoy small wins to maintain motivation, you might have a hard time sticking to the debt avalanche method.

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How To Pay Off Credit Card In

It can be a challenge to pay off outstanding credit card debt. It can be challenging to imagine how you will get out of debt, and it is easy to feel as if youre facing the wall.

One suggestion, which sounds appealing in the abstract, is to figure out how to get rid of debt and not pay it off.

Its undoubtedly appealing however, pursuing it could be more harmful than beneficial. Here are the methods you can get rid of debt, without paying all the debt you owe, with some important reasons to look at alternative options.

Get A Debt Consolidation Loan

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If you have a lot of different debts youre trying to pay off, you can take out a debt consolidation loan to combine them into a single debt. You can get these loans from banks, credit unions, or private lenders.

A debt consolidation loan is a type of installment loan, meaning youll receive an initial lump sum and then repay it over a set period of time. Immediately after taking out the loan, youll use the money to pay off all your debts. After that, youll only need to worry about paying back the loan itself.

Debt consolidation loans can be very useful tools, but they have certain disadvantages. For instance, even if the loan starts out with a low interest rate, your lender might increase it after youve had the loan for a while. 6They may also charge you an origination fee. Whats more, if the loans term is long, you might end up paying more to clear your debts in the end, even if your monthly payments go down. 7

Before taking out a debt consolidation loan, review the loans terms, sit down with a calculator, and make sure that its really a good financial decision.

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