Credit Card Debt Assistance Options

If your credit card debt is out of hand, don’t despair … you’ve got plenty of company.

By the end of 2024, total household debt in the U.S. was $18.04 trillion, including $1.2 trillion in credit card balances. With all that debt, it’s no surprise that 7.18% of credit card accounts are in serious delinquency, which means payments are 90 days or more behind. About half of credit card holders don’t pay off the balance every month, which means interest accrues and it gets even harder to catch up.

If your debt is more than you can handle, there are options for credit card debt relief, ranging from doing it yourself, to talking to a counselor at a nonprofit agency, to debt consolidation, debt management, and even bankruptcy.

Credit Card Debt Relief Options

There are many options for consumers who are serious about reducing or eliminating their credit card debt. All have pros and cons, depending on your financial situation.

Borrow from Home Equity

If you own your home and have substantial equity, you may consider refinancing, using cash out to pay off high-interest credit card debt. The downside is that you’re putting your home at risk as collateral. You may get locked into a higher interest rate than what you were originally paying, which can cost you more in the long run than even those high-interest credit cards, since you’d pay for a much longer period on a higher balance. Review your budget and options with a counselor at a nonprofit credit counseling agency before taking the plunge.

Debt Consolidation

A debt consolidation loan pays off balances on multiple credit cards and other debt, while you make a single monthly payment. The benefits are it has an end date (typically 36-60 months) and a lower interest rate that reduces your monthly payment. Many lenders pay their creditors directly or require that a certain percentage of the loan be used to pay off debt. It’s possible to get a debt consolidation loan with bad credit, even a FICO score as low as 580, especially if you use your home, car or other property as collateral. Make sure the numbers work to your benefit before committing.

Credit Card Balance Transfer

A balance transfer card is another form of debt consolidation. You transfer the balances from high-interest cards to a new card and pay zero interest for a specific period of time (usually 12-18 months). When the introductory period is over, the interest rate goes up significantly. The idea is to pay off the balance before that happens. You usually need good or excellent credit, with a score of 670 or more, to qualify.

Personal Loan

A personal loan with a fixed interest rate lower than what you’re paying on credit cards is yet another form of debt consolidation. Unlike a debt consolidation loan, the lender won’t require that all, or a portion of it, goes to pay off debt. Some lenders have different terms and requirements for personal loans vs. debt consolidation loans, and a personal loan may have more flexible qualifying standards. To get a personal loan, banks, credit unions and online lenders are the best choices. The better your credit score, the better the rate, higher amount and other terms. To figure out how much you’ll have to pay and how quickly you can pay off your credit card debts with a personal loan, use a debt consolidation calculator.

Friends and family may also be lending sources for a personal loan, especially if they don’t charge interest and are flexible with repayment terms. If you borrow money from them, be sure to put the terms in writing and treat the loan like it’s from a bank so you don’t irreparably damage relationships.

Speak with Your Credit Card Company

If you’re behind on credit card payments, or expect to be, or are having trouble making minimum payments every month, contact your credit card company ASAP. Many card companies are willing to discuss lowering your credit card interest rates, waiving fees, or both. Competition among lenders for reliable borrowers is fierce. Credit card companies also don’t want you to default. They want to get paid. If you just can’t make your payments, it helps to be in good standing with the company to get some relief.

If you have a life-altering circumstance that has hurt your ability to pay, most lenders offer hardship programs. Relief might include lower interest or fee waivers. It may be temporary, or it could be permanent.

Before you call, be sure you know how much you owe, whether you need a short-term solution or a long-term one, and what you can pay monthly. Be professional and courteous and stay on point.

If your credit card company agrees to a relief plan, make sure they send it to you in writing.

Strategies for Credit Card Debt Relief

Paying off debt requires a plan of attack that, with time and persistence, will get it under control. Before you choose a strategy, arm yourself with knowledge. Review your credit card statements, and make note of the balance, APR and minimum payment for each. No matter which strategy you choose, it’s important that you don’t use credit, or use it sparingly, while paying off what you already owe. If you do use your cards, add the amount you charged to the card payment for that month.

If you need a splash of cold water to stay on track, find the part of your credit card statement that shows how long it will take you to pay and how much extra it will be, if you only make minimum payments on the balance. The numbers will be staggering.

Some proven strategies for paying off debt include debt snowball, debt avalanche, debt snowflake, automating payments, debt management plans and DIY debt relief. Some are up to you, some come with help. The best debt relief strategy depends on your financial situation, as well as your comfort level.

Debt Snowball

The debt snowball, also called “debt dash,” attacks the card with the lowest balances first. While paying down cards with the biggest balances or highest interest rate will save you more money, studies have found that paying off a card builds motivation and debt-relief momentum.

The steps to paying off credit cards using the debt snowball are:

1. Create a budget and determine how much you can pay monthly toward all your credit cards.
2. Pay as much as you can each month on the card with the lowest balance, while paying the minimum on your other credit cards.
3. Once the card is paid off, tackle the next lowest-balance card. Your payments will be bigger since you can add the amount that was going toward the first card.
4. Repeat the method with each credit card. As you eliminate cards, the amount you have for payments increases – it’s snowballed – and the process will go faster.

It’s important, of course, not to use the credit cards while you’re paying them off. If you do, pay what you charged fully at the end of the month in addition to your budgeted payments.

Debt Avalanche

Debt avalanche attacks credit card debt with the highest interest or biggest balance first. As with snowball, you create a budget and review your card statements, so you know the balances, APRs and minimum payments.

The steps to paying off your credit card with the debt avalanche method:

1. Determine which card is costing you the most – the one with the highest balance or the highest interest. It may be the same card.
2. Make as high a monthly payment as you can on the costliest card, while paying minimums on the other cards.
3. Once that card is paid off, go after the second costliest card, using the extra money you now have since the first card is paid off.
4. Continue until all your credit cards are paid off.

Debt Snowflake

If your budget is so tight you don’t have extra money to pay above minimum balances, the debt snowflake method can help. Make your minimum payments, but whenever you have extra money, put it toward a credit card bill. With online paying, it’s easy to make payments throughout the month. Even small, random payments can make a difference. If you get into the habit of doing this frequently, you’ll find your minimum payments and credit card balances decreasing and may be able to transition to debt snowball or debt avalanche. It’ll also focus more attention on your credit card bills and balances, helping you be more aware of how to pay it off.

Automating Payments

Late fees are added to your balance, and you pay interest on them if you don’t pay off your balance every month. If you’re just making minimum payments, a late fee can even eliminate any benefit of paying. Rolling up late charges is one of the worst mistakes you can make when paying off debt. If late fees are adding up, it’s time to automate payments.

You can set up payments so that they automatically come out of your account on a specific day every month. This way, you’re paying consistently and on time. You can still make extra payments during the month if you want to pay more. Most credit card companies prefer automated payments, and many reduce the interest rate by a small amount – usually around 0.25%, if you set it up. You may have to agree to it when you first apply for the card, but if you didn’t and the lender offers the benefit, it doesn’t hurt to call and find out if you can still get the reduction if you automate.

If you can pick a payment date, set up the same day of the month for all of your payments. This makes it easier to keep track and ensure that the money will be in your account. Just make sure it’s not too early – no matter how much you pay, if the payment is too early it won’t count toward your monthly minimum for the next payment date.

Automating payments isn’t a total debt strategy, rather a tool that will help other strategies succeed.

Talk with a Nonprofit Debt Counseling Company

A discussion with a nonprofit credit counselor may be all the credit card relief assistance you need to get back on track. They will review your finances and budget with a nonjudgmental eye and sort out how best to attack your bills without any further help needed.

On the other hand, it may reveal that bigger steps are necessary. The counselor will discuss your financial action plan and options for debt relief that include debt management plans, debt consolidation, debt settlement or bankruptcy.

Talking to a credit counselor is just one step in the process, not a complete debt relief strategy. But it’s an important one, no matter what strategy is best for you.

Debt Management Plans

A debt management plan offered by a nonprofit credit counseling agency allows you to roll all of your credit card payments and other unsecured debt into one monthly payment. The credit counseling agency works with card companies to lower interest rates and waive fees so that you pay off your debt in 3-5 years. The benefit is that you make a fixed monthly payment, and the debt management company pays off your cards. To qualify, you must have adequate income to make the monthly payment and still cover your other bills.

The steps to starting a DMP are:

1. Find an accredited nonprofit credit counseling agency through the National Foundation of Credit Counselors (NFCC) or S. Department of Justice.
2. Review your finances in a free discussion with a credit counselor. Be prepared to provide information on monthly bill amounts, including housing, utilities, car payments, groceries, and gas, as well as income.
3. Discuss a budget and options for debt relief.
4. If the counselor determines debt relief is the best option, agree to a monthly payment. The agency will mail you, or email you, documents to sign before the DMP becomes official.
5. Make the agreed-to monthly payment until your debt is paid off, usually 3-5 years.

You’ll be able to access your account online to see your balances decrease, how many months are left in your plan, and the total amount you owe.

A DMP will improve your credit score, since payments are being made on time and balances are decreasing. A DMP also helps you form good financial habits and makes you less dependent on credit cards.

Bankruptcy

If you have more debt than you can handle, declaring bankruptcy offers a second chance, but it also has serious long-term financial implications. Bankruptcy is a court action in which a judge decides if, and how, your debt will be discharged.

With Chapter 7 bankruptcy, some of your assets may be sold to pay your creditors as much of what is owed as possible. You keep property necessary to live, such as your home, car (to a certain value), work tools, household appliances and furnishings. The Chapter 7 bankruptcy process takes 4-6 months. It’s only available for those with limited income – if you have adequate income to pay your bills, your bankruptcy filing may be converted to Chapter 13. Your credit score will plummet, and Chapter 7 bankruptcy remains on your credit report for 10 years. It doesn’t discharge most student loans, alimony, child support and tax liens.

Chapter 13 bankruptcy allows you to keep your property and reorganize your finances so you can pay off your debt and catch up on back payments. It takes 3-5 years. The court works out a payment plan that, once completed, allows you to discharge any remaining unsecured debt. About half of those who start a Chapter 13 bankruptcy don’t make it all the way through. If you don’t make payments, it’s dismissed and you’re back to managing your debt on your own. You can, though, ask the court to modify your plan to make it easier to make payments.

DIY Debt Relief

A do-it-yourself plan may be all you need to get credit card debt under control. All it takes is motivation and organization, with a dose of being realistic about goals and challenges. Track your progress so you can watch your credit card balances shrink. This could be a visual chart that you stick on the refrigerator, a graphic on your computer, or just jotting balances down on a notepad every month – whatever works!

Steps for DIY debt relief:

1. Gather all of your financial information including income and bills.
2. Create a monthly budget that determines how much money is coming in, and where it will go. Make sure it’s accurate and realistic.
3. Include credit card payments in the budget, with extra money to pay off cards using the snowball or avalanche method.
4. Call your credit card companies and see if they will negotiate lower interest rates or waive fees to make your monthly payment lower.
5. Stick to the budget and make adjustments as needed.
6. Do not use credit cards unless you can pay off the balance when the next payment comes due without impacting the rest of your budget, including your regular credit card payments.
7. Cut expenses wherever you can so you have more money to pay off debt.

Debt relief strategies compared

» Learn More: Can You Pay off a Credit Card With Another Credit Card?

How Credit Card Debt Relief Programs Work

The two major debt relief options, debt settlement and debt management, may sound similar, but they have big differences that will have an impact on your finances for years to come.

Debt Settlement

For-profit debt settlement companies attempt to negotiate a lump-sum payment that forgives at least 50% of what you owe.

But getting rid of your debt with this method comes with drawbacks. The settlement company arranges for you to put a set amount of money in an escrow account each month and stop making payments to your creditors. That has a serious negative impact on your credit score.

Once the lump sum is applied to your debt, the rest is forgiven. You’ll have to pay income tax on the forgiven amount, since it’s now considered income by the Internal Revenue Service. The fact that you didn’t pay what you owed also will remain on your credit report for seven years and make creditors leery about lending to someone who couldn’t pay their bills.

Debt Management

A debt management plan offered by a nonprofit credit counseling company allows you to pay off the total balance of your debt, but with a lower interest rate and monthly payment.

The counselor works with creditors to pay off your debt in 3-5 years. They work with you on a budget that consolidates all your unsecured debt into a single monthly payment that’s manageable within the budget. You make the monthly payment, which includes a small administrative fee, until your debt is fully paid off.

Your credit score improves as payments are made on time and your debt is reduced. A debt management plan doesn’t show up on your credit report, all that shows is that your credit card bills are being paid.

» Learn more: How Does Debt Relief Work?

Credit Card Debt Relief Companies: What to Look For

When you seek outside help for debt relief, make sure you’re dealing with a nonprofit credit counseling organization. A no-cost discussion with a counselor will help you design a workable budget that will determine how much you can afford monthly to pay off your debt.

The top features of the best debt-consolidation companies are:

• Nonprofit organization [an accredited nonprofit credit counseling agency will have .org on its website, not .com.]
• Low fees
• Lower interest rates than you’re paying now
• Affordable monthly payments
• You’ll get into a program that zeroes your debt in 3-5 years, sometimes less.

Research debt relief organizations carefully and keep an eye out for credit repair scams. If they want money up front and make too-good-to-be-true promises, stay away.

Credit Card Debt Relief Myths Debunked

Companies that claim they can settle your debt for much less than you owe should be researched carefully before you dive in. Many are scams. Even those that aren’t, will cost you in ways you may not realize.

Let’s take a deeper dive into credit card debt relief, the myths and the facts.

• I can get my credit-card balance cut in half for any reason at any time. Not true. Debt settlement is for borrowers who can demonstrate financial hardship, such as a job loss, divorce, medical problems or loss of income. Getting credit card debt waived just because you feel like it isn’t going to happen.
• I have to pay someone to help settle credit card debt. Not true. Proven strategies like snowball/avalanche, asking your lender for relief, rolling debt into a single lower-interest loan, talking to a debt relief counselor, and other ways to eliminate credit card debt are available to anyone at no or low cost.
• If I use a debt settlement company, I have to pay upfront. Not true. Debt settlement companies that market their services are barred from collecting advance fees.
• Debt settlement won’t harm my credit score. Not true. When a portion of what you owe is forgiven, it shows on your credit report as not being paid. You also stop making payments once you contract with a debt settlement agency. Your score can drop 100-200 points and will remain on your credit report for seven years.
• Debt settlement won’t cost me much. Not true. Most debt settlement companies charge a fee based either on a percentage of your total debt or the amount forgiven. You’ll also pay overdue payment penalties and more interest while your cards languish before the settlement company pays them off. Then there’s the income tax on the forgiven amount.
• If I don’t settle, or resolve it, my debt stays on my record forever. Not true. There’s a statute of limitations for debt collections, usually 4-6 years, depending on what state you live in. If a debt collector contacts you about an old debt, check to see if it’s time barred. Unpaid debt stays on your credit report for seven years.
• If I’m hopelessly behind, debt settlement or bankruptcy are my only options. Not necessarily true. If you lost your job, experienced a drop in income, suffered a sudden illness or were recently divorced, or had another setback, your creditors may grant forbearance, which means they may reduce or suspend payments temporarily. Meanwhile, contact a nonprofit credit counseling service to help you get reorganized, and to go to bat on your behalf.
• Once negotiations for debt settlement are completed, I’ll be out of debt. Not necessarily true. Some debts don’t qualify for settlement, including student loans, back taxes, child support, alimony. Secured debt — on a house, a car, a boat, or a collateralized personal loan — can’t be easily settled, unless the security is repossessed, or demonstrated to be worthless.

» Learn more: Can You Get Out of Credit Card Debt Without Paying?

Don’t Hesitate to Get Help Paying Off Your Debt

Consulting a credit counselor is a good move, even if it’s just to help you understand your options. A counselor can help you with the basics of finance, deal with creditors, help you create a budget and craft a payment plan.

Although the strategies listed above have proven histories, you might want help deciding which one fits you best or need support and motivation. A credit counselor is a good place to start.