Overcoming Credit Card Debt: A Step-by-Step Guide
Whether you owe a lot or a little, paying off your credit card debt is always a good idea. Before and after you make a big purchase, whether you use it to pay bills and groceries or just use it to earn points. Make sure the slate is clean as often as possible. If you can’t do that, you might consider using your credit less if you can.
About 60% of Americans live paycheck to paycheck; According to a report by Pymnts.com. As inflation persists, credit card customers continue to struggle to make money Minimum paymentcausing damage credit score and increased interest Consumers need to pay.
The average American credit card balance is $5,910according to CNET sister site Bankrate. There are growing concerns that many credit card accounts will become delinquent as borrowers default on payments.
If you’re having trouble paying your credit card, we have some options to help you stay on track while you try to pay off your bill. Want to know more, here are Best credit cards to pay off debt.
1. Call your credit card company and explain your situation
As soon as you find yourself unable to make your minimum payments, contact your credit card company immediately so they can understand your situation. If a company is unaware, it may assume the worst and take action. Notifying your credit card provider can help avoid any negative consequences and keep you in control.
Your credit card company may be able to set up a payment plan that you can afford. Lenders can also change your repayment due date to better match your paycheck. You can also negotiate a lower annual percentage rate (APR) — the annual interest you pay on your credit card balance.
Whatever you do, get the details in writing. Bruce McClary, the company’s senior vice president of communications National Foundation for Credit Counselingtold CNET that you should make sure to receive formal confirmation and terms from your credit card issuer about any changes to your account, just in case things don’t work out the way you imagined.
Credit card issuers may also have relief or hardship programs (see below) that have less impact on your credit score than delinquency (overdue accounts) or having your account Deductedmeaning it is written off as a loss and no longer applies to future expenses. When this happens, your credit utilization ratio increases, which can lower your credit score. It also reduces your credit history, which affects your credit score.
If you are unable to make a payment, contact your lender as soon as possible.
2. Try credit counseling or a debt management program
Another option for dealing with credit card debt is to find a nonprofit credit counseling agency or a debt management program that can help with budgeting.
“A debt management plan can help you get back on track affordably and within your budget, while you’ll also benefit from reduced payments and interest rates until your account is paid off,” McCrary explains. These plans can help you get back on track according to your budget. Your budget works with creditors to find long-term solutions that make payments more sustainable. they are ok Negotiate with creditors on your behalf Create a new payment plan.
Rod Griffin, senior director of consumer education at Experian, recommends contacting your attorney general’s office or Consumer Financial Protection Bureauand check consumer government All local options available to you.
3. Reframe your budget and look for areas where you can save or earn more money
If you’re having budget problems and struggling to pay your bills, consider cutting any unnecessary monthly expenses and applying for government assistance. Some schemes can provide you with a stipend to pay your energy bills – for example, Low Income Home Energy Assistance Program. States also offer rental assistancealso Temporary Assistance for Needy Familieswhich helps with food, housing, home energy, child care and job training.
Consider canceling next streaming services or cable, shop less and return recent unnecessary purchases. Try to eat more at home and reduce the number of trips to restaurants and specialty coffees. Work from home if possible Save gas money. You can also use Pay As You Go car insurance options If you don’t drive often. These small changes may not be enough to pay your bills, depending on how much you owe, but the money you save can still add up in the long run.
Once you identify savings opportunities, start looking for other ways to make more money. Go through your pantry for items you don’t need and then Second hand electronic products and list products for sale on apps like eBay, Mercari and Poshmark. you can Start a side hustle Or sign up to drive for Uber or Lyft. You can also rent your car at teaching when you’re not using it.
4. Transfer your balance to a 0% APR introductory credit card
If your credit score is still good enough – for example, you haven’t missed any payments – consider applying 0% introductory interest rate credit card and Transfer your balance. You’ll typically need a credit score of at least 670 to use one of these cards, but transferring your credit card debt to a 0% APR introductory card can save time and money while you’re trying to pay off your credit card debt.
However, if you’re already in financial straits and can’t afford your current minimum repayments, this may not be the best option for you, as you’ll still need to pay with your new card even during the introductory period. If you don’t do this, your 0% APR period may end early.
If you can’t get approved for the 0% introductory APR and have multiple credit card balances, consider applying debt consolidation loan. Your debt will still charge interest, but you’ll only pay one fee and the overall interest rate may be lower.
A credit counselor can help find solutions to make payments more sustainable.
Disadvantages of Credit Card Hardship Programs
Although you won’t see many ads, many creditors offer hardship programs to help you pay off your credit card debt. These terms vary by lender but may include options such as skipping a payment or lowering the minimum payment or annual interest rate. Generally, you will need to contact your creditors to apply for the program, but there may be certain provisions. For example, you may need to provide evidence that you are experiencing difficulties.
However, these plans have some drawbacks that can hurt your credit score. This is what they are.
1. Pay off the debt at a lower price than originally agreed upon
If you settle your debt for less than what was originally agreed upon (for example, if your original debt was for $15,000 but you settled for $10,000), it could hurt your credit score because you didn’t meet your original obligation. On the other hand, McClary adds, while you focus on paying off credit cards, you should prioritize fixing your debt rather than your credit score — paying off debt will have a greater long-term impact than obsessing over isolated credit components. Influence.
2. The card issuer can lower your credit limit or close your account
Credit card companies may lower your credit limit or even close your account when you make a payment, which can lower your credit score. A lower credit limit affects your credit utilization ratio (the ratio of your balance to your credit limit)—a major component of your credit score—because the total amount of credit you use will increase.
If your account is later closed, your average credit age (the length of all accounts divided by the total number of accounts) (another credit score component) will be reduced. Your credit utilization ratio and length of credit history are two important factors in your credit score.
3. Sign up for hardship programs under normal circumstances
WalletHub analyst Jill Gonzalez told CNET that simply signing up for a hardship plan could indirectly hurt your credit score. “Your credit card issuer may place a note on your credit report to alert other potential creditors of your financial problems.”
Because of the negative impacts a hardship plan can have, it’s best to work with a financial advisor to develop a good relief plan, Griffin said.
For more information click here How to get out of credit card debt. In addition, there are What you need to know about debt consolidation And how it hurts and helps your credit.
If you want to build bad credit but need the tools, check out our recommendations Best Credit Cards for Bad Credit and Best Credit Cards for Fair and Average Credit. Use these cards together Best Practices for Improving Your Credit Will help protect your finances.
