If you have large amounts of credit card debt, it can feel a lot like drowning. If you’re fighting to make minimum payments, missing a few deadlines, and seeing the totals piling up, it’s easy to become paralyzed. But there are options for dealing with credit card debt no matter how large your balances have become. Here are a few you can explore based on your current situation from Low Income Financial Help.
First, Stop Using Credit Cards
No matter your current circumstances, if you’re struggling with credit card debt, the first thing you need to do is stop adding to the problem. This can mean anything from simply setting the cards aside and making a promise to yourself to stop shopping on credit to cutting them up so you can’t bring them to stores.
You can solve a credit card debt problem if you keep acquiring more debt, so make sure to stop using all of your credit cards immediately.
Debt Payment Approaches
If you can make all of your minimum payments, you can use one of several popular repayment plans to help manage these debts. One method, popularized by Dave Ramsey, is the debt snowball approach. This strategy involves making only the minimum payment on every debt except for the one with the lowest balance.
On your lowest balance card, work to make more than the minimum payment every month. This allows you to obtain a quick win by paying off a debt, helping to keep your motivation high. Once that debt is paid off, add the amount you were sending to that creditor to the credit card with the next lowest balance. Continue until all of your cards are paid off.
A similar approach is the debt avalanche method. This program focuses on paying off the card with the highest interest rate first instead of the lowest balance. You might not get the quick win like with the debt snowball method, but you will pay less over the long-term.
Debt Management Plans
If you can’t make the minimum payments on your credit card debts, then a debt management plan may be a better option. These can help you get the interest rate and monthly payment reduced by formally agreeing to a set of terms. Normally, the associated credit card will have to be closed, so you can’t use the card again, and you may see changes in your credit score based on the account closure. However, it can make repayment more manageable, so it’s worth exploring.
For debt management, you have two options. First, you can negotiate with the credit card companies directly. Second, you can work with a debt management agency who will do the legwork on your behalf. If you choose the latter, make sure you do your research before selecting an agency as not all of these businesses are as reputable as others.
In some cases, debt consolidation may be a strong option, especially if you are a homeowner or have good credit. At times, these loans can have lower interest rates than your credit cards, and they simplify repayment by rolling everything into a single loan. If you choose to use the equity in your home to support the loan, be aware that this new debt is now secured by your house. If you’re unable to make the payments, your home could be seized.
If you have no other viable options, then you may need to explore bankruptcy. This process is complex, so you will need to work with a professional to ensure everything is managed properly, assess whether any property is at risk, and to make sure you would qualify. However, if you are overwhelmed by debt, it can provide a reprieve. But, consider it a last resort, as the negative impact on your credit score and report is a burden you’ll have to carry for years to come.