Struggling with credit card debt can feel like a daunting task. High interest rates and compounding balances make it difficult to pay off the principal and get out of debt.
If you are struggling with credit card debt, there are ways to ease this financial burden. There are several credit card debt reduction options available to help you get back on the path to financial freedom.
Key Credit Card Debt Statistics
- As of the fourth quarter of 2024, Americans will have approximately $1.12 trillion in credit card debt.
- The average U.S. credit card balance was $6,501 as of Q3 2023, up 10% year over year.
- The national average credit utilization rate is 29 percent.
- Gen Xers have the highest average credit card debt at $9,123.
- Millennials will see the largest increase in credit card debt in 2023, at 15.4%.
- Forty-four percent of credit card holders say they carry over a card balance from month to month.
- 36% of American adults have more credit card debt than they have saved for emergencies.
- 38% of U.S. adults would be willing to borrow money for discretionary purchases in 2024.
source: Experian 2023 Consumer Credit Review, Bankrate 2024 Credit Card Debt Report
Is credit card debt forgiveness an option?
Credit card debt forgiveness is unlikely as few lenders offer this option, but it’s worth talking to your credit card issuer about what options are available to you.
Contact your credit card companies to express your concerns about paying off your balance and ask what you can do to make your debt more manageable. Creditors may be willing to temporarily lower your interest rate, work out a lower payment plan, or even write off some of the debt.
Be wary of companies that claim to offer government-backed credit card debt forgiveness programs. Such program claims are likely to be scams.
Credit Card Debt Reduction Options
If your credit card company doesn’t offer you the option directly, you can still consider other debt relief methods.
Debt consolidation
Debt consolidation is a form of credit debt reduction in which you combine multiple debts into one monthly payment. This can be done through a debt consolidation loan, a balance transfer credit card, or enrolling in a debt management program.
Credit card debt consolidation streamlines the repayment process by combining some (or all) of your debt into one monthly payment. The goal is to secure a more favorable interest rate and simplify your obligations. The process usually involves taking out a new personal loan with a lower interest rate. This may temporarily lower your credit score a little, but it helps you pay off your debt faster and save on interest costs.
With a balance transfer credit card, you move your existing balance from a high-interest card to a new card with more favorable terms. You may be able to take advantage of a 15-25 month interest-free period, during which you can pay off your credit card debt without paying interest. The higher your credit score, the longer the 0 percent APR period may be.
Benefits of debt consolidation
- Lower interest rates and reduced fees
- Possibility of paying off credit card debt faster
- Monthly payments make it easy to manage
- On-time payments can improve your credit score
Disadvantages of debt consolidation
- Approval issues, especially if you don’t have a good credit score
- Commitment to a long-term repayment plan
- Additional costs from loan fees
- You could hurt your credit score when taking out a consolidation loan for the first time
Debt consolidation
Debt consolidation is the process of negotiating with your creditors to reduce the total amount of debt you owe by paying most of the debt in one lump sum.
Debt consolidation is usually a last resort option that you can only choose after your account has gone into default. Companies won’t want you to consolidate unless they think they won’t get paid otherwise. You’ll be charged fees and your credit score could drop while you’re not making payments.
There’s also no guarantee that credit card companies will accept your debt consolidation offer, and you risk damaging your credit score without any benefit. You could also be charged penalty interest.
You can negotiate with your credit card company or find a reputable nonprofit credit counseling agency that can guide you and negotiate on your behalf. Some for-profit companies also offer debt consolidation programs.
To avoid debt relief scams, research the company before you apply.
Benefits of debt consolidation
- Potential reduction in total debt
- Single window for debt resolution
- Possible shorter repayment period
Disadvantages of debt consolidation
- Usually requires a large lump sum payment
- Negative impact on credit score
- Even if the debt restructuring procedure fails, there are no associated fees
- There is no guarantee that lenders will accept settlement offers.
- Forgiveness of debt is generally considered income by the IRS, which means taxes may be due.
bankruptcy
Bankruptcy is a legal process that allows you to free yourself from large amounts of debt by liquidating your assets or working out a repayment plan. Chapter 7 bankruptcy is used for unsecured loans (such as credit card debt), while Chapter 13 bankruptcy is best if you have certain assets you want to keep.
Bankruptcy is often considered a last resort, but it may be a viable option for people with debts they cannot repay. Although the bankruptcy process involves court proceedings and procedural hurdles, about 96 percent of Chapter 7 bankruptcy cases are successful in discharging debts.
The main benefit of declaring bankruptcy is that you receive a court order that relieves you of the obligation to pay certain debts. Bankruptcy may bring relief and a fresh start, but certain debts may be discharged, such as student loans, alimony, and past tax debts. Bankruptcy will have a significant impact on your credit score for 7-10 years.
It’s important to note that unlike other debt relief methods, in bankruptcy, creditors cannot sue you for non-payment.
The benefits of bankruptcy
- Possibility of forgiveness of certain debts
- Protection from creditor lawsuits during bankruptcy proceedings
- Certain property is exempt and therefore cannot be sold to pay off debts.
- An opportunity to start rebuilding your credit right away
Disadvantages of bankruptcy
- Possible forced asset sales to repay debt
- Certain debts are not forgiven
- Big impact on your credit score
Another way to get out of credit card debt
Aside from traditional debt relief options, there are alternative strategies to consider when trying to regain control of your credit card debt.
Financial Counseling
Advice from a financial and credit counselor can provide valuable insight into your budget, spending habits, and debt management strategies that can help you get out of debt while also giving you the tools to get out of it.
Strategic Debt Repayment
Strategic debt payment methods, such as the debt snowball or debt avalanche, can help you prioritize and steadily pay off your credit card debt. You pay at least the minimum balance on one debt until the debt is paid in full. You then “roll” the money you’d put toward that debt toward paying off the next highest priority debt.
The debt snowball method focuses on paying off the smallest debts first, while the debt avalanche method prioritizes paying off the debts with the highest interest rates first.
Debt Relief Mistakes to Avoid
Certain pitfalls can increase your financial difficulties when seeking credit card debt relief: When searching for a debt relief plan, avoid the following:
- Debt relief scams: Some criminals target people seeking help with credit card debt. Make sure you know how to spot debt relief scams, which include promises that you will qualify for debt relief or improve your credit score.
- Hidden Fees: Most credit card debt settlements come with a fee. Make sure you know what the fee is so you don’t get surprised by hidden costs.
- Impulsive financial decisions: Avoid rushing into purchases, which will further jeopardize your financial stability. It takes a long time to get out of debt and it takes persistence to achieve financial freedom.
- Harassment by debt collection agencies: Ignoring contact from creditors can lead to increased collection efforts, additional fees, and damage to your credit score. But that doesn’t mean you should give debt collectors a license to harass you. The Fair Debt Collection Practices Act governs how debt collectors can and can’t contact you.
- Predatory lenders: Avoid dealing with loan sharks who can trap you in a cycle of debt.
Conclusion
Credit card debt can be scary, but it doesn’t have to ruin your financial future.
If you’re struggling with credit card debt, contact your credit card company to see if you can adjust your terms to make your debt more manageable. You may also find financial counseling and creating a strategic debt repayment plan helpful.
If you are choosing between debt consolidation, debt settlement, or bankruptcy, carefully consider the pros and cons of each to ensure you are making the right decision.
