Debt comes in many forms. In my book there is good debt and then there is bad debt. There are many risks involved when your credit card debt starts to become a recurring problem in your life.
Credit cards are incredibly useful and so easy to use, but if you don’t pay the balance off in full then they fall into the bad debt category.
Bad debt needs to be tackled so I have a great guest post from someone who really knows his stuff about tackling credit card debt.
Hey, I’m Chris. I have a degree in Business Economics from the University of Liverpool, own a small fast food business and run LifeUpswing.com. I will help you to make money, save money, and think about money in a way that will give you back your freedom.
Problem Credit Cards
Credit cards can be a great tool for both building credit and having the means to pay for something in an emergency.
Ideally, you would pay the full balance every month and not incur any interest or fees.
However, there are times when credit card debt becomes a problem. Common causes of problematic debt include paying medical bills, impulsive shopping, and spending on living expenses.
What’s important is recognizing that there is a problem and dealing with it. Debt won’t go away on its own, you must make a plan to tackle it.
The good news is that I can help you. In this guide, you will learn what to do when credit card debt becomes a problem.
How Do You Know If Your Credit Card Debt Is A Problem?
Simply having a credit card balance isn’t a problem on its own. Indeed, some personal finance statistics show that 64% of Americans rate their personal finances above average.
How do you know when credit card debt becomes a problem?
The first obvious sign you are starting to struggle is if you can only afford the monthly minimum payment each month. Paying just the minimum means it can take years to clear a credit card balance. If that’s all you can afford it may be time to get help.
If you start receiving calls, letters, and emails from debt collectors, then this is an obvious sign that your credit card debt has become unmanageable.
Don’t ignore these demands for payment. Fees and interest will keep getting added if you do nothing. Take action to deal with the debt so it doesn’t grow out of control!
Other signs you are struggling with credit card debt include constantly maxed out balances, regularly paying late or missing payments, having no spending money left once bills are paid, and repeatedly asking for the credit limit to be increased.
Think about your spending habits and if any of these apply, then you may want to seek help.
Tips To Pay Off Credit Card Debt
Now that you’ve recognized there is a problem, you need to create a plan to deal with it.
Start by creating a realistic budget for every expense. Check your budget weekly to keep it accurate and work on cutting as many expenses as you can. Any savings you make could go towards paying the debt off faster.
You should also stop using your credit cards while you work on paying them off. If your balances are high because of impulsive spending, then consider cutting up the cards to avoid temptation.
Stick to using either your debit card or follow the cash envelope system to keep track of exactly what you have to spend each week.
Next, contact every creditor to discuss repayment. Many companies will happily work with you on getting out of debt. Freezing interest, fees, and reduced spending limits are all possible depending on your needs.
However, most measures are only available temporarily. This means you need to concentrate on paying them off as quickly as you can.
Strategies For Paying Off Credit Cards
Once you have a budget and know what repayments you can afford, you need to consider how to approach paying off the debt. There are two methods that often work for many people.
The first method is called The Avalanche method. List your debts in order of interest rate. Make sure to pay every minimum payment and overpay the debt with the highest interest rate first.
When that’s paid off move on to the debt with the next highest interest rate. Keep doing this until they are all paid off.
Another strategy to pay off debt is called The Snowball method. Begin by listing all your debts starting with the one that has the lowest balance. Use all extra money every month to pay off the debt with the lowest balance first.
The idea is that as each debt is paid off, the extra money available makes it quicker to pay off the next one. Many people find this method best as they can see results quickly as the lowest debts get paid off quicker.
8 Organizations That Can Help With Debt
Sometimes when you are stuck in a cycle of debt it becomes impossible to break it on your own. It’s OK to ask for outside help when you need it.
There are lots of organizations that exist solely to help people in times of need. Make sure to use them! Here are 8 places that can help anyone struggling with debt.
Non-Profit Credit Counseling Agencies (NFCC)
Credit counselors work with you to create a realistic debt management plan. They can help you create a realistic budget and act on your behalf to negotiate lower payments with creditors.
As part of the budget, you will agree to pay a monthly amount towards debt. You will pay this to the agency, and they will pay the creditors accordingly. All of this should be agreed upon in writing and any fees you must pay should be affordable depending on your budget.
To get help now contact the National Foundation For Credit Counseling (NFCC) and they will connect you with an appropriate counselor in your state. Counseling sessions can be held over the phone, online, or face-to-face to accommodate your situation.
Federal Trade Commission (FTC)
The FTC is a great resource for information on coping with debt. Budgeting, credit counseling, debt plans, and much more are clearly explained on the FTC site.
Using this free resource can be a great help to understanding the different strategies available to cope with debt.
Credit Reporting Agencies
Contacting local and national credit reporting agencies to get a copy of your credit report is recommended. Once you’ve seen your full report you can fix any errors that there may be.
If there are errors and they get fixed this can help improve your credit rating. A better credit rating can mean getting lower interest rates.
Not everyone will have errors to correct, but everyone should check to make sure. It’s also worth checking your reports at least once a year to make sure no errors have appeared.
It’s important to keep your report accurate because an inaccurate credit report will affect your ability to lend money in the future.
Check out Chris’s post on easy ways to improve your credit score for more credit score information.
Contacting your creditors directly can be a good way of dealing with debt. Many creditors are happy to work with people that are struggling and can negotiate lower interest rates, payments, and fees.
Make sure you can pay the agreed payments as repeatedly breaking a payment arrangement may mean they won’t negotiate in the future.
The Student Loans website that is run by the federal government is a great source of information on how to manage debt. Topics include learning about avoiding defaults, getting loans forgiven, and consolidating federal education loans.
Having a lower monthly payment via loan consolidation or income-based repayments is helpful for some people. Make sure to take into account that you may pay more interest over the lifetime of the loan.
Private Student Loan Consolidators
In some cases, consolidating your student loan debt can make it easier to get out of debt. Consolidation can mean getting a lower interest rate or a fixed rate. This is instead of having a variable rate.
Another possible outcome is that the monthly payments may be reduced making it easier to pay off debt faster. Remember, this could mean the interest paid is higher over the life of the loan.
A further benefit of consolidation is removing the need to deal with multiple companies. Having the debt in one place makes it easier to manage.
To get started and learn more about the available options start with the Student Loan Network.
National Institutes Of Health (NIH)
If you hold a doctoral degree in the medical profession you may qualify for loan forgiveness of up to $100,000! Check the Loan Repayment Program on the NIH website to see if you are eligible.
The United States Department Of Justice
The Department of Justice offers lots of fantastic free information to help people manage debt. Debt education providers, credit counseling, bankruptcy, managing debt, and much more are explained.
This is all freely available information that you can use to understand debt better and how to manage it.
Dealing With Credit Card Debt – Next Steps
Now that you know what to do, you need to act!
Start by making a budget and discussing your needs with a non-profit credit counselor. Next, use as many of the resources listed above that are relevant to you and get all the help you can.
Being in debt is stressful and paying it off will take hard work and patience. However, if you can stick to the plan of paying off the credit card debt, then you can reap the rewards in the future.
Keep in mind what you want to do once the debt is gone. A dream holiday, buying a home, or getting a new car are all things you can do once the debt is gone and you have the extra money to spend however you like!
Start taking back control of your money by grabbing your copy of the Money Saving Starter Guide today.
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Last Updated on 5th April 2023 by Emma