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With the high cost of living and inflation, many people use credit cards to cover their basic needs. But carrying a balance comes at a cost.
According to the Federal Reserve, the average credit card interest rate is currently nearly 23%. If you have $10,000 in outstanding credit card debt with a 23% interest rate, you’ll pay nearly $191 in interest for this billing period. If you don’t pay off a large portion of that balance, that interest will increase and next month you’ll be charged interest on the new, higher amount.
Paying off five-figure credit card debt can be overwhelming, especially if you have exhausted other options. If you have tried the debt avalanche and debt snowball methods or paid more than the minimum amount, you may need to look for alternative approaches. Below are some ways to Get debt relief that you may not have thought of yet.
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3 ways to pay off debt you may not have considered
Need help getting your debt under control? Here are three debt relief options you may not have considered:
Get a credit card with 0% balance transfer
Credit cards are revolving lines of credit with variable interest rates. This means that interest rates can change at the discretion of the credit card issuer, usually based on an index influenced by market conditions.
Many issuers offer 0% transfer cards that defer charges for an introductory period that typically lasts between 12 and 21 months, depending on the card. Leslie H. Tayne, Esq., attorney and founder of Tayne Law Group, says this option gives you time to pay down your debt.
“If you have good credit, you can apply for a new credit card with one of these introductory offers,” she says. “The transferred balance will not accrue interest during this time, so 100% of your payments can go toward balance reduction.”
Not all balance transfers will apply to your overall balance, so you may need to pay off the balance on your new 0% interest card and the old card. If this is the case, consider making minimum payments on your new card and paying as much as you can on your old card, as it charges interest.
Once this amount is paid off, you should try not to make any more purchases with it and use all your extra money on the 0% balance transfer credit card. After the promotional period ends, interest will be charged on the balance.
“You may have to pay a balance transfer fee that ranges from 3% to 5%,” says Chris Browning, founder and host of Popcorn Finance, a personal finance podcast. “But that’s four to six times lower than your typical credit card interest rate. If you don’t pile on more credit card debt, this can be a great way to speed up your debt payoff.”
Check here now which debt repayment option is best for you.
Take out a loan for debt consolidation
If you have multiple credit cards with different interest rates, it can be difficult to keep track of all the outstanding balances, due dates and interest rates. This can make repayment time-consuming.
A Debt consolidation loan is when you take out a personal loan to pay off your high-interest credit card debt, often at a lower interest rate than what you’re currently paying on your debt. Then you pay off your loan in monthly installments until it’s paid off.
You can also Consolidate your debts with a Home loan. These typically have lower interest rates than personal loans, but you use your home as collateral. If you default on your home equity loan payments, you could lose your home to foreclosure.
Debt consolidation loans usually have fixed interest rates and terms of up to several years.
Debt management and debt settlement plans
Sometimes it is necessary to ask for additional help. Talk to a nonprofit credit counselor or a Debt relief company about creating a debt settlement plan. These counselors will review all of your outstanding debts and help you set up a monthly payment to the credit counseling agency, which will disburse your payment to each of your creditors. They will work with your creditors to settle your debts, and while this will not erase your debt, they will help you find a payment plan that works for you. However, you will usually pay a fee for the agency’s services.
In some cases, you may be eligible for a debt settlement, where a company negotiates to settle your outstanding debts for a lower amount than the amount you currently owe.
“This is more likely to succeed if you are way behind on payments and the credit card company is unlikely to get its money back,” says Tayne. “Often (creditors) would rather accept a partial payment of the balance than nothing at all or have to spend time and money filing a lawsuit.”
Some scammers prey on people who are way behind on their debt repayments, so be careful when checking out companies that will take on your debt settlement. If a debt settlement company guarantees results, that is a red flag.
“If you are seeking a settlement on your credit card debt, I recommend working with an attorney who specializes in this area, as negotiations can be difficult and a professional may be able to negotiate a better deal than if you tried to do it on your own,” says Tayne.
The conclusion
Traditional methods of paying off debt don’t work for everyone. If you’ve tried making extra payments or using the debt avalanche method without too much success, there are other options. But remember that not every choice is right for everyone, and some come with more risks than others. Sometimes talking to your creditors can be a good way to figure out your options.
“If you’re having trouble making even the minimum payment, negotiate with your creditors,” Tayne advises. “In some cases, they may be willing to offer you a hardship plan that will temporarily lower your interest rate or monthly payment and help you get back on your feet.”
