How to pay off your credit card debt

Oct 30, 2018 4:00:00 PM

Credit card debt is often inevitable, and it can be pretty scary to deal with. This is compounded by debt collectors making hyperbolic claims of being able to seize your property or get you incarcerated for not paying back debt.

Not to worry - having debt is normal, especially if you’ve been to college, put kids through college, bought a house, leased a car, or really made any sizable purchase with a credit card. Collectors have their scare tactics, but it turns out, as debt is normal, there are many ways to deal with it.

Here are a few smart ways to manage and eventually rid yourself of credit card debt.

Pay it down

The main way to get rid of debt is paying it down over time. This is of course easier said than done, with debt easy to accrue and rates constantly rising. Paying down a sizable debt means making detailed financial plans month by month, and finding ways to save on everyday items and extra expenditures, so you have enough to deal with your debt payments.

A few tactics to help you along the path to no longer netting negatives are to section off your payment targets by credit card, or into smaller pieces. It’s much easier to think about paying back a few grand than over twenty thousand beans.

Another exercise you can do is to figure out how you came to your current debt total, and budgeting from there. In this way you can figure out how you got into debt, understand the steps necessary to not get into debt again, and also know which of your credit cards to pay down first.

Consolidate with a loan

If clever budgeting and personal mathematics won’t do the trick, there are other ways to work toward clearing your credit card debt, and quickly at that. One such way is to consolidate it into a new loan, called a debt consolidation loan. You may be wondering how taking out a new loan can subtract from your debt. In reality, it can’t actually do that, but taking out a new loan can reduce the interest rate on what you’re paying.

Additionally, a consolidation loan with a longer repayment period may lower your monthly payment, but increase the total amount you repay. However, you can always pay off the loan faster by making more than the minimum monthly payment.

Get a balance transfer credit card

If a loan is not your speed, another option is transferring all your debt (or the debt from a high interest card you may enjoy swiping) to a lower rate card. HUECU currently offers new cardholders 0.00% on balance transfers for the first 12 months. An offer like this could save your 12 months of interest payments you otherwise would be paying on a higher rate card. 

Getting a balance transfer card will also help if you are using the avalanche method of paying down your debts. The avalanche method entails targeting your highest interest debt, and paying that down first. This is contrasted with the snowball method, which consists of paying down smaller amounts first. The terms of your debts have to be pretty flexible to successfully pull off either, but if you have a balance transfer card, it brings down the interest rates so you can go with an avalanche.

Enroll in a program

Another worthwhile option to look into is a debt management program. Especially designed for credit cards, medical bills - what’s called unsecured debt, meaning no collateral backing - these programs may help you get improved interest rates and fees to match. You will even get a credit counselor, to help educate you on how to pay back debt.

Enrolling in a debt management programs means giving the program itself the ability to pay back the creditor via a plan they set up, although this puts you on the hook to keep monthly payments consistent. Your program can drop you if you don’t pay responsibly. On the flip side, being in a debt management program can improve your credit score, a handy bonus for debt management.

Debt management programs aren’t quick fixes, though, as they can last three to five years. In that time, creditors might not be ringing up your house at all hours, so the medium term plan doesn’t seem quite so hefty.

Set up your home as collateral

In the case of slightly frightening credit card debt, owning a home may work well for you. Putting up your home as collateral against credit card debt sounds risky, though it is a viable option. This is called a home equity line of credit (HELOC), with the parallel option of doing a cash-out refinance. As said before, it does carry risk, but also the lowest interest rates.

One very important thing to remember about this loan, and other consolidation loans you may take out to pay down credit card debt, is that it may not account for the entirety of what you owe. Make sure you figure out which parts of your debt are more pressing after taking out a new loan, as it will change the terms of paying back a debt.

Settle your debt

In the case where nary a snowball or avalanche will help you pay off your debt, you may have to think about settling. This is an option reserved for when you don’t see the light at the end of the tunnel, vis a vis affording your credit card debt.

Settling your debt is a trickier and more involved process than debt consolidation. To settle, you will have demonstrate to all the creditors you owe that most likely they will not receive anything. If this works, it will reduce the debt amount, though your credit score and credit report will be significantly damaged in the process. 

The problem is that you may not find success in negotiating the terms of a settlement, in which case you will still have to pay the full amount, along with interest and fees for late payments - if you’re going for debt settlement, you’re likely not making enough monthly payments and are starting to default on your debts. Success in debt settlement means paying the full amount agreed upon, with the taxes coming in the following April. 

This is one of the more extreme options, so really weigh the credit score cost against paying down debt, especially if you can be patient. And above all, be very wary of debt settlement companies, or steer clear of them to begin with. In general, credit card debt can be a challenging weight on your shoulders, though it pays to do your research and take your time with it, as your credit score and financial situation in general will be better for it. 

Contact GreenPath Financial Wellness

If you’re not sure where to start, we recommend getting some personalized advice. As a benefit of HUECU, members have access to the GreenPath Financial Wellness Program. An expert financial counselor is available to take the time to understand your financial situation and can provide free debt counseling and help you create a personalized plan that works for you. Learn more about GreenPath here or call 877-337-3399.

Tags: Credit Cards, Balance Transfer, Personal Finance, Debt Management