Your Roadmap to Credit Card Debt Freedom
Overview
$1.031 trillion – that is the amount of debt, in U.S. Dollars, that Americans have as of the second quarter of 2023, according to data from the Federal Reserve Bank of New York. Unfortunately, credit card debt is some of the hardest to escape, largely due to the high-interest rates and the exponential hole that a consumer put themselves in when they carry a balance.
Beyond the reality of debt, though, Americans are also living paycheck to paycheck at a significantly high rate. CNBC recently conducted a survey that found that 61% of Americans are living paycheck to paycheck, up from 58% in March. Pairing this with the existing problem of credit card debts, it becomes a compounding problem – how can an American living paycheck to paycheck pay off whatever credit card debt they might carry each period?
There are a variety of ways to get credit card debt relief – let’s talk about it.
When Should You Seek Relief?
Pursuing credit card debt relief is a difficult decision to make and, realistically, should be decided upon on a case-by-case basis. Generally speaking, there are a few different circumstances or instances that should push you to seek one of the multiple forms of credit card debt relief that will be covered below.
If you notice your credit card debt is growing out of hand and, regardless of your efforts, the debt is continuing to grow, it might be time to pursue some type of credit card debt relief. Similarly, if you are managing to slowly pay down the bill but this is making it nearly impossible (or at least very difficult) to pay other bills, it is time to look into credit card debt relief.
In more serious cases of credit card debt, you might be receiving debt collection notices – if so, it is time to consider one of the debt relief options mentioned below. Everyone has different financial histories and circumstances; evaluate your personal situation and make the tough decision of pursuing credit card debt relief or not.
Multiple Types of Credit Card Debt Relief
There is not a single solution to credit card debt relief; there are a variety of approaches and resolutions that an individual can pursue. Creating the “relief" that you are looking for can come in the form of a formal negotiation with the creditor all the way to simply refinancing the debt through a lower-interest personal loan.
Consolidate with a Personal Loan
One of the first types of debt relief that you might want to consider is consolidation through a personal loan. Typically, credit card debt will carry an interest in the low-to-mid twenty-percent rates; thus, it can be difficult to pay off the carrying debt that you have. By taking out a personal loan, you will essentially eliminate the existing high-interest debt by spending your new low-interest debt.
Assuming you have relatively healthy credit to fall back on, you should consider applying for a personal loan equal to the size of the credit card debt that you have. Say you have $20,000 of credit card debt – you would then apply for a $20,000 personal loan, which will carry much lower interest than the credit card(s).
To pursue this option, you will need to have at least fair credit to be accepted for the personal loan.
Negotiate with Creditor
Negotiating with a creditor might sound intimidating and stressful; however, it is a great way to rid yourself of credit card debt. To negotiate, a debtor will reach out to their credit card company and negotiate a lump sum payment amount that is less than the existing debt owed to the creditor. You can attempt to negotiate with the credit card company yourself or you can hire a third-party debt settlement company who will likely have more experience.
By pursuing negotiation with your creditor, you can reduce the amount of debt that you are in while avoiding more dire situations like bankruptcy.
Bankruptcy
Bankruptcy should be viewed as the last resort option for most individuals, as it is largely an extreme option for those who face dire circumstances. Realistically, this debt relief option will have a severe effect on your credit and will last for many years beyond the initial filing. This should be considered the last resort option and will require attending bankruptcy court, which will ultimately determine how much of your debt gets eliminated.
Before pursuing this option, though, it is important to meet with a bankruptcy attorney to make sure that you qualify to file for bankruptcy. Again, please recognize that this should be viewed as a last-resort option for credit card debt relief.
Conclusion
Credit card debt relief has a variety of options that an individual can pursue. Evaluate your circumstances and understand the pros and cons of each of the potential debt relief options covered above.