How to get out of credit card debt
Credit cards are almost like alcoholic beverages in how they’re used. They’re not so bad if you only use them a little, but they can be addicting if you get in the habit of using them a lot. Often the biggest temptation is to use them to buy big ticket items, because you probably figure if you don’t have enough cash on hand to pay upfront, using your credit card lets you buy now and pay later. The problem is when you do that, your credit card balance goes way up, you probably can’t pay it down each month when you run it up, and then you have to pay interest on that balance which leads to high credit card debt. If you have high credit card debt, it’s going to take work to get out of; but you can do it through several different ways.
Stop spending money with your credit card and use your card issuers payment plan
If your credit card balance becomes too high that you fear you can’t get it back under control, it’s time to stop using it and use a payment plan to get it paid off. The good news is most credit card issuers have payment plans that involve paying off the balance in several installments instead of a lump sum payment. Doing this can keep you from adding more interest to the card, and if you make those payments, you won’t need to get sent to collections. You just need to contact your credit card company in the event you miss, or believe you’re going to miss a payment on your credit card. Usually they will work out the payment plan for hardship situations which could include periods of forbearance.
Use a credit card consolidation program
Should you take on credit card debt by using other debt? That’s basically what consolidating credit card debt is. The answer is yes, if you can do so with very low interest or no interest debt. A common way to do this is by using a balance transfer credit card with zero interest for the first year, or even zero interest for two years in some cases. You do usually have to make a certain minimum monthly payment on the balance of this card to ensure your interest rate is zero. But by doing so, you are giving yourself a chance to cut down your debt without accruing more in the process.
If you can’t get a zero interest credit card, you might be able to get one of the following:
- Personal loan for debt consolidation
- Home equity loan or line of credit
- Second mortgage or cash-out refinance mortgage to use for debt consolidation
The key is to make sure any loans you use to consolidate your credit card debt are lower in interest than your credit card rates. You also want to avoid spending funds from these loans so that you get out of debt quicker.
Bankruptcy filings and credit card debt
You might be wondering if you really need to go as far as filing for bankruptcy to try and deal with credit card debt. It really depends on how big the hole you’re in is, and whether or not you need to work out a payment plan that your credit card issuer or other creditors are unwilling to work with you on. Yes, there are some major consequences that come with filing for bankruptcy of any kind including being ineligible for future loans like mortgages and business loans for several years. But it may be necessary in order to get a debt payment plan that you can afford, and you might be able to avoid losing personal assets like your home or vehicle in doing so.
There are multiple types of bankruptcies you can look into filing if needed, though each one requires a careful review of your financial situation.
Chapter 7 Bankruptcy basically eliminates all debt, except for IRS debt and a few other exceptions, setting you at ground zero. But this bankruptcy can involve putting your personal assets at risk.
Chapter 13 Bankruptcy requires you to pay off your debts, but in amounts that work for you. It’s possible to have part of your credit card debt is forgiven in this process.
Life after credit card debt is paid off
There are some experts who will tell you once your credit card debt is paid off to cut up your credit cards and throw them away. For some people, this may actually be a better idea than getting back into a debt cycle that credit cards can cause. But if you can drink responsibly, you can use a credit card responsibly. You should take to heart the following ideas:
- Change your lifestyle to be more frugal so you don’t spend your credit card on things you don’t need
- Debt shouldn’t be used to purchase big ticket items except for homes, because mortgages have the lowest interest rates of all consumer debt, and real estate can increase in value
- Use a budgeting app or software that will account for every dollar you spend and put limits on your credit card usage
It is important to make changes once you get out of credit card debt so that you can build your credit back up, and achieve financial freedom for your future.
