It’s not ideal to have any type of debt, but high-interest credit card debt can derail financial situations that much faster. Credit card interest rates for excellent credit only dip to around 14 percent, with fair credit scores and department store credit cards carrying interest rates ranging from 22–25 percent!
Combine bad decisions and insufficient income with crippling interest rates and you have one of the primary reasons behind the United States consumer debt crisis. According to creditcards.com, 38 percent of households carry revolving debt. And per NerdWallet’s annual household debt report, the average household that carried debt had a balance of $15,482.
As grim as these statistics sound, they don’t have to be your fate. Consider these strategies when dealing with your family finances in order to escape credit card debt.
Commit to a Real Repayment Plan
Many people never get out of debt for the simple reason that they never prioritize it. Let’s clear the air: paying the minimum on monthly balances isn’t being responsible unless it’s because more money is going to specific balances to eliminate more principal.
Because that’s what getting out of debt requires: actual progress. DIY plans could include the debt-snowball approach, which focuses on paying off the smallest balances first, or the debt-avalanche method, which pays the most toward the highest-interest balance, committing is more critical to a plan in the first steps to shedding debt. If more guidance is needed, credit counseling agencies provide education on money management and budgeting. Some even offer debt management programs that take a debtor’s monthly payment and distribute it among their creditors in a principal-first way.
Consolidate Growing Debt
Credit card debt isn’t insurmountable, but it often feels so when we present. A big reason for this is the unfavorable terms consumers must persevere through to make headway on their principal balance. Various debt consolidation methods allow debtors to pay back their existing high-interest balances and funnel the debt into better terms. For instance, opening a balance transfer card moves a debtor’s balances to one credit card with an interest-friendly introductory period. A debt consolidation loan, or personal loan, works similarly to a balance transfer card in that debtors can pay back their outstanding balances and maintain one monthly payment after that. For homeowners, accessing some of the equity in your home could solve your debt without affecting your financial situation too much.
Seek Debt Relief
Receiving late payment notices and collections mail isn’t fun for anyone. These things feel like the start of the end, but they can also be the opposite with the right embrace and plan. Two forms of debt relief, debt settlement and bankruptcy, relieve debtors from some, or all, of their debt.
Debt settlement involves a debtor negotiating with their creditors (or enlisting a company to do so on their behalf) to reduce debt. Debtors attempting to settle debts on their own could save money in settlement fees that companies charge, but as evidenced in some Freedom Debt Relief reviews, many burdened consumers seek debt settlement services for the support and guidance as much as they do the negotiating expertise.
On the other hand, bankruptcy is a more extreme method if one can get past going to court. Declaring chapter 7 could wipe away all debt and in as short as three-to-five months. However, in exchange for debt forgiveness, the court will attempt to liquidate a debtor’s personal assets to pay creditors. Chapter 7 also stays on credit reports for up to 10 years. Declaring chapter 13 protects personal assets but requires payments to be made to a court for three-to-five years. Chapter 13 stays on credit reports for up to seven years.
Some strategies are smarter than others when it comes to escaping credit card debt, but the only plan that is straight-up stupid is doing nothing about it at all. Let one of these plans illuminate your path forward.