Struggling with credit card debt can be overwhelming. High interest rates and compound interest make paying off and reducing debt difficult.
If you’re struggling with credit card debt, there are ways to ease that financial burden. There are several debt payoff options that can help you get back on the path to financial freedom.
Key statistics on credit card debt
- In the fourth quarter of 2024, Americans had about $1.12 trillion in credit card debt.
- The average credit card balance in the U.S. was $6,501 in the third quarter of 2023, an increase of 10 percent over the previous year.
- The average credit utilization ratio across the country is 29 percent.
- Generation X has the highest average credit card debt, at $9,123.
- Millennials’ credit card debt is rising the fastest, at a rate of 15.4 percent in 2023.
- 44 percent of credit card holders say they transfer their card balances from month to month.
- Thirty-six percent of adults in the United States have more credit card debt than emergency funds.
- Thirty-eight percent of adults in the United States are willing to take on debt for non-essential purchases in 2024.
Sources: Experian Consumer Credit Rating 2023, Bankrate 2024 Credit Card Debt Report
Is credit card debt forgiveness an option?
Credit card debt forgiveness is highly unlikely as few lenders offer this option, but it’s worth speaking to your credit card issuer about what options might be available.
Contact your credit card company to share your concerns about paying off your balance and ask what can be done to make the debt more manageable. Your creditors may be willing to temporarily lower your interest rate, work out a lower payment plan, or even write off some of the debt.
Beware of companies claiming to offer government-sponsored credit card debt forgiveness programs. Any claim of such a program is likely a scam.
Credit card debt relief options
Even if your credit card company doesn’t offer direct options, you can look for other methods to pay off debt.
Debt consolidation
Debt consolidation is a form of credit relief that combines multiple debts into a single monthly payment. This can be done through debt consolidation loans, balance transfer credit cards, or participating in a debt management program.
Credit card debt consolidation simplifies the repayment process by combining some (or all) of your debts into one monthly payment. The goal is to get a better 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 can help you pay off your debt faster and save money on interest expenses.
Balance transfer credit cards let you transfer your existing balances from high-interest cards to a new card with better terms. You may be able to get an introductory period of 15 to 25 months with no interest. During this time, you can pay off your credit card debt without interest. The better your credit score, the longer the 0 percent interest period can be.
Benefits of debt consolidation
- Lower interest rates or reduced fees
- Opportunity to pay off your credit card debt faster
- Simplified administration with one monthly payment
- Possible improvement of creditworthiness through timely payments
Disadvantages of debt consolidation
- Approval issues, especially if you don’t have good credit
- Commitment to a long-term repayment plan
- Additional costs due to credit fees
- Possible deterioration of creditworthiness when taking out a consolidation loan for the first time
Debt settlement
Debt settlement involves negotiations with creditors to reduce total debt by offering a lump sum payment of a large portion of the debt.
Debt settlement is generally a last resort, as it is usually only considered if your account falls behind. Companies are unlikely to agree to a settlement unless they fear they won’t get paid otherwise. As long as you don’t make payments, you will likely be charged fees and your credit score will drop.
There is also no guarantee that the credit card company will accept your debt settlement proposal, which means you risk damaging your credit score without benefiting you. You may also have to pay penalty interest.
You can negotiate with your credit card company or find a reputable, nonprofit credit counseling agency that will counsel you or negotiate on your behalf. Some for-profit companies also offer debt settlement programs.
To avoid debt relief scams, be sure to research each company before signing up.
Benefits of debt settlement
- Potentially a reduction in total debt
- Single point of contact for debt settlement
- Possible shorter repayment period
Disadvantages of debt settlement
- Usually requires a large lump sum payment
- Negative impact on creditworthiness
- Costs associated with the debt settlement procedure, even if it is unsuccessful
- No guarantee that the lender will accept the settlement proposal
- Forgiven debts are generally considered income by the IRS, so tax consequences may arise
bankruptcy
Bankruptcy is a legal process that provides relief from overwhelming debt by liquidating assets or creating a repayment plan. Chapter 7 bankruptcy is used for unsecured loans (like credit card debt), while Chapter 13 bankruptcy may be best if you have certain assets you want to keep.
Although bankruptcy is often viewed as a last resort, it can be a viable option for individuals with insurmountable debt. The process involves court proceedings and procedural hurdles, but about 96 percent of Chapter 7 bankruptcy cases result in successful debt discharge.
The biggest benefit of declaring bankruptcy is that you can walk away with a court order that relieves you of the obligation to pay certain debts. While bankruptcy can provide relief and a fresh start, certain debts such as student loans, child support, and older tax debts may be exempt. Bankruptcy will also have a significant impact on your credit score for seven to ten years.
Note that unlike other methods of debt relief, bankruptcy does not allow the creditor to sue you for non-payment.
Advantages of bankruptcy
- Possible cancellation of certain debts
- Protection against creditors’ claims in insolvency proceedings
- Certain property is exempt, meaning it cannot be sold to pay off your debts
- Opportunity to start rebuilding your credit immediately
Disadvantages of bankruptcy
- Possible forced sale of assets to repay debt
- Certain debts will not be forgiven
- Significant impact on creditworthiness
Alternative ways to get out of credit card debt
In addition to traditional debt repayment options, there are alternative strategies you should consider when trying to get your credit card debt back under control.
Financial advice
Consulting with financial and credit counselors can provide valuable insight into budgeting, spending habits and debt management strategies. This can help you get out of debt while giving you tools to stay debt-free.
Strategic debt repayment
Using strategic debt payoff methods, such as the debt snowball or debt avalanche, can help you prioritize and pay off your credit card debt steadily. Both the snowball and avalanche methods require you to pay more than the minimum amount on one of your debts until that amount is paid off in full. Then, you “roll” the amount you would have spent on that debt into paying off the next debt faster.
The snowball method focuses on paying off the smallest debts first, while the avalanche method focuses on paying off the debts with the highest interest rates first.
Mistakes to avoid when relieving debt
Certain pitfalls can increase your financial challenges when you are looking for credit card debt relief. Avoid the following when looking for a debt relief plan:
- Debt relief fraud: Some criminals target people seeking help with their credit card debt. Make sure you know how to spot a debt relief scam, such as guarantees that you qualify for debt relief or that your credit score will be improved.
- Hidden fees: Most credit card debt solutions come with fees. Make sure you know what the fees are so you aren’t surprised by hidden costs.
- Impulsive financial decisions: Try not to make hasty purchases as this can further jeopardize your financial stability. Getting out of debt is a long-term process and it takes persistence to achieve financial freedom.
- Harassment by debt collection agencies: Ignoring communications from creditors can result in increased collection efforts, additional fees, and a drop in your credit score. But that doesn’t mean you should allow debt collectors to harass you. The Fair Debt Collection Practices Act sets out how debt collectors can and can’t contact you.
- Usurious lenders: Avoid loan sharks who offer high-interest loans that can push you into a cycle of debt.
The conclusion
While credit card debt can seem daunting, 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 they can adjust the terms to make the debt more manageable. Getting financial counseling or creating a strategic debt repayment plan may also help.
If you decide to go through debt consolidation, debt settlement or bankruptcy, carefully consider the pros and cons of all options to ensure you make the right decision.
