Read on to find out the steps you can take to pay off this debt.
Reduce Credit Card Usage
If you have credit card debt, the first step you should take to begin paying off this debt is to stop using your credit cards for unnecessary purchases. Incidental and impulse purchases can really add up, and you can find yourself owing more than you can actually pay. Be sure to keep track of all your credit card purchases so you can see exactly where you are spending money, and cut out any unnecessary spending.
Pay Off the Card With the Highest Interest Rate First
If you want to know how to pay off debt across multiple cards, prioritizing paying off debt on the card that charges the highest interest rate is the best strategy. Put as much toward that credit card debt as you can each month while paying the minimum on your other cards. Once your balance on the highest-interest card is zero, begin paying off the next-highest-interest card and repeat until all debts are paid off.
Talk With Your Credit Card Company
Having a polite yet determined conversation with your credit card company can possibly help you work out a modified payment plan that reduces your payments to an amount you can manage. If you explain your financial situation, the company might consider negotiating with you to come up with a debt repayment plan that works for you.
Speak to a Credit Counselor
Credit counselors can advise you on debt management strategies, help you come up with a budget, and provide other useful educational material and workshops. These counselors will discuss your financial situation in full, and help you create a plan to tackle your credit card debt. It’s important to find a reputable counselor, preferably one that is government-approved. Also be sure to understand any fees that come along with the counseling services: If fees are high, this could end up adding to your credit card debt, rather than helping to alleviate it.
Take Out a Debt Consolidation Loan
If you have debt on multiple credit cards, you might consider using credit card debt consolidation to roll your payments into a single monthly payment. The loan will come with new payment terms and interest rates, so be sure that if you do choose this option, you won’t be paying more in interest than you would be if you paid off each account separately.
Use a Debt Settlement Company
Debt settlement companies will negotiate with your creditors to allow you to pay a lump sum to settle your debt. That lump sum payment will be less than the full amount you owe. The company will ask that you set aside a specified amount from your savings every month to put into an escrow-like account that will go toward the lump sum. Although this might sound like a good solution for repaying credit card debt, be sure that you understand the risks involved. These risks include:
- Not being able to make the monthly payments. Be sure to review your budget to make sure that the terms set by the debt settlement company are actually feasible. Otherwise, you might end up having to drop out of the debt settlement program.
- The debt settlement company might not be able to settle all your debts. Typically, it will negotiate small debts first, which means larger debts — including the interest and fees that come with them — might not be resolved.
- Putting monthly payments into your debt settlement account rather than putting that money directly toward paying back your credit card company means that you could still be racking up penalties and late fees. Plus, you could be sued by your credit card company for repayment, and this can lead to garnished wages or a tax lien on your home.
If you are willing to take on these risks to get debt relief, it’s important to research the debt settlement company you wish to do business with, as some can be scams. Make sure the company discloses the price and terms, results, offers and nonpayment consequences before signing any agreement.
Filing for bankruptcy can lower your credit score and have other serious consequences, but in some cases, it’s a viable way to pay off credit card debt as a last resort. If you file for Chapter 13 bankruptcy and have a steady income, you will be able to keep property such as your house or car. As part of the bankruptcy process, the court will approve a repayment plan that will allow you to pay off your debt over three to five years. Once the debt is repaid, the debts are discharged.
Before filing for Chapter 13 bankruptcy, you must hire a lawyer and receive credit counseling from a government-approved counselor within six months of filing.
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