Credit Card Debt Relief Options When You Need it Most
CNN Business has some bad news… mixed with some good news… which might also be bad news, depending on how you look at it…
U.S. households are now sitting on a record $14 trillion in mortgages, credit cards, student loans and other forms of debt. Household debt ticked up 0.7% during the third quarter… continuing a five-year climb encouraged by low unemployment, strong consumer confidence and cheap borrowing costs.
That $14 trillion is $1.3 trillion more than the previous high in 2008. Let’s assume that much debt is generally bad news.
On the other hand, a big chunk of that are mortgages – meaning people are buying homes. So that’s… good news, right?
Student loans climbed by 1.4% to $1.5 trillion, while credit card balances rose $13 billion during the third quarter.
$13 billion? What are we charging out there, my friends?
Everything, apparently.
Here’s more good news mixed in, however:
All of that borrowing, particularly credit cards and mortgages, support consumer spending -- the biggest part of the US modern economy.
Remember I said, though, that the “good” part depends on how you look at it?
But that debt will also become harder to repay during the next recession when unemployment rises.
Egads – we’re already planning for the next recession. Then again, NOT planning is largely how we keep ending up where we do, isn’t it?
Let’s set aside the national economy for now and talk about what this sort of debt – particularly that credit card debt they mentioned – might mean for you and yours. We care about the big picture, but we live in a small one. What does credit card debt mean for you right now? In six months? In a few years?
Take a deep breath and stay with me for a moment. Yes, you probably need to be taking your credit card debt more seriously. But no, it’s not hopeless.
And, as it turns out, we know a thing or two about credit card debt relief. What a coincidence.
The Debt Debate
Debt in and of itself isn’t always bad. Managed debt allows us to purchase things we’d never otherwise be able to afford. It allows us to keep money in savings or balance our spending while making controlled, predictable payments over time for things like our homes, vehicles, or other major needs. Most Americans, rich or poor, carry at least some debt. So do many successful businesses.
It’s all very well to talk about “debt free living,” but for most of us, that’s simply not realistic. What I think we really mean most of the time is something more like “debt-managed living.” Or, to put it another way, I think we’re OK with managing a little debt in the right way for the right reasons, but not OK with debt managing us.
Like so many things, debt is a tool. Like so many tools, it can be used well or used poorly. When it’s used poorly, bad things can happen.
Mortgage
Mortgages are a prime example of productive, perhaps even necessary, debt. Few people would fault you for borrowing money to buy a home. Most of us finance our automobiles as well. While there are better choices and worse choices when it comes to cars and trucks and the prices we pay, the idea itself is generally accepted as sound.
Student Loans
They are the second-largest source of debt in the U.S. – are a bit trickier. This one opens up political debates and issues about life choices and is definitely a topic for some other time. Underneath all the complications, however, there’s at least a decent argument to be made that it’s reasonable to borrow a certain amount of money to finance post-secondary education.
There are plenty of reasons to get a degree of some sort, but one of the top several has to be employment or career advancement. I mean, we can at least hope that whatever else our education is, it’s an investment in our future, yes?
“Good” vs. “Bad” Credit Card Debt
But then there’s credit card debt. It feels… different. Like we’ve already done something wrong by even talking about it, let alone having it. Surely there are no GOOD reasons to have credit card debt, right?
Pros
Credit cards, like other forms of debt, can be wonderful tools. They allow us to reserve hotel rooms and order stuff online and take the crew out to dinner without having to worry about having enough cash. They give us the ability to pay for that emergency car repair or cover those co-pays at the hospital without giving up groceries for the week. Plus, we get to choose cute little designs or the logo of our favorite sports team to go on the front – so that’s fun.
Now if whoever’s in charge could just figure out once and for all if they want us to insert or swipe and whether or not we’re supposed to leave the card in while we punch the buttons, we could all be having a pretty good time with our little plastic friends.
Cons
But of course… there’s also the flip side. Credit cards allow us to spend more than we can afford, often for things we may really want but don’t always need. They charge interest and ask only minimum payments each month, so our balances easily swell without us always being sure exactly what it is we’re getting for what quickly becomes unmanageable debt. That’s how we end up in desperate need of credit card debt relief.
In other words, credit cards give us power, and power can go all sorts of ways. Sometimes they give us just enough power to get ourselves in serious debt trouble. Or, sometimes, they’re merely symptoms of our inability to bring in enough income each month to keep up with our ongoing obligations. Either way, it would be nice to get a handle on that credit card debt.
Working Your Way Towards Credit Card Debt Relief
There are several ways to approach credit card debt relief. I suggest starting with a slightly different mindset than many of us have when trying to eliminate – or at least dramatically reduce – our existing credit card debt. Remember that you’re working towards more freedom, more options, and more power in your financial life. Reduced debt means a better credit rating and improved credit history. Reduced debt means lower interest rates and loan options when it’s really important. Reduced debt means more opportunities to do productive and fulfilling things with your money down the road.
Start with a Positive Mindset
If we go in feeling like failures who are merely trying to clean up our mess, that may motivate us for a time. I don’t know about you, but for me, that kind of negative motivation simply doesn’t last. It’s too draining. There are enough things in this life trying to tell us how short we fall of the ideal or how many things we coulda-shoulda-woulda done better. Honestly, I find it exhausting. Why not try to look forward? Imagine what credit card debt relief might mean to you in one short year if you begin a few straightforward changes today?
Is it really so horrible to think maybe you’re doing the best you can, but there are some ways you could do better? Honestly, you’re not doing THAT badly. Look around you. If you have somewhere to live and those you love are fed and aren’t going to work or school naked and unwashed, you’re ahead of the game. And even if you’re not, you’re here, reading this. You want to do better. You WILL do better, whatever the world keeps throwing at you. And while we can’t fix it for you, we can help.
The major pathways towards credit card debt relief aren’t complicated, but that doesn’t mean they’re easy or fun. Like losing weight and getting physically healthy or trying to earn a post-secondary certification or degree, the steps are easy to understand. Now we just have to do them.
Create a Budget
One of the most important things you can do is to make a monthly budget. I know, I know – in your mind, you’re running through all of these reasons right now that you don’t really need to take that approach. The reality is, however, that there’s really no substitute for a clear, honest look at your income each month and exactly where your money is going.
It might take a month or two to get your written budget to match your actual spending. This isn’t about judging you or making you feel bad. If you want to spend $100 a month on Hot Wheels or fancy coffee drinks, that’s up to you. You’re an adult. It’s your money. But be AWARE that you’re spending that money. It should be a DECISION, not something that just kinda happens and you try not to think about it.
A budget will also help you prioritize each month. There’s nothing more frustrating than getting that bill in the mail you forgot about and realizing you don’t have enough left to pay it on time. Last week you could have covered it, but you ended up doing other things, and now...
A budget will help you take control of your finances and work towards complete credit card debt relief.
Debt Consolidation
Another option for reducing bad debt and moving towards credit card debt relief is to look at your options for consolidating debt. Sometimes the right personal loan can help you pay off high-interest cards and other miscellaneous bills in exchange for one lower monthly payment at a better interest rate.
Keep in mind that this is not a magical cure-all for your money troubles. It’s not a “get out of debt free” card that you can play repeatedly at will. Your credit rating matters when determining what sort of terms you can get, and your credit record will be impacted for better or worse depending on how faithfully you make your new payments.
Most importantly, if you’re going to work towards credit card debt relief by utilizing a consolidation loan, don’t let yourself keep using those cards, incurring that new debt, adding those obligations, while you’re paying off your consolidation loan. If you do, you’ll end up worse off than before. Debt consolidation should be part of an ongoing strategy to take control of your financial circumstances. Make sure you avoid common mistakes when paying off that debt.
What if I Have Bad Credit History?
That said, don’t despair if things look hopeless. Even if you have a rocky credit history or a poor credit rating, there are online lenders who specialize in helping people in situations just like yours start rebuilding their credit and taking control of their circumstances. You’re not the first person to end up behind on your bills. Stuff happens. Life is complicated. Sometimes we mess up, and sometimes we get messed over. It doesn’t have to be permanent, and you don’t have to figure it out alone.
Consider Online Lenders
If you decide to pursue debt consolidation as part of credit card debt relief, give us a shout. We maintain a carefully curated list of legit, flexible online lenders who want to work with you to reach your goals. There’s nothing wrong with traditional banks or credit unions, and if you can find the deal you want with one of them, go for it. But many of our online lenders are intentionally structured to be nimble and creative when it comes to bad credit, challenging circumstances, or unusual arrangements.
If you decide you don’t like what they’re offering, that’s fine, too. It’s your money and your life and your decision. We’re not charging you for the hook-up or selling you magical solutions to anything. Our endgame is to help you take better control of your finances and be more intentional about your income, your spending, your investments, etc. Part of that is leaving the final decision for all of it entirely up to you.
If you are considering a debt consolidation loan, here are some options for you, just put in your information, and you may get suggestions about a potential lender for you:
Balance Transfers
Balance transfers are a dialed-back version of debt consolidation that generally apply only to your existing credit card debt. You may have several cards at various interest rates, or one card at a relatively high-interest rate. With a little credit card shopping, you may find you qualify for a card with a lower rate and fewer fees, or which offers terms or benefits your current cards don’t. That’s when you might consider a balance transfer.
Securing a Lower Interest Rate
Essentially, you ask your new credit card provider to move your existing credit card debt to the new card. Once this is completed, your old credit card debt can be paid off at the newer, lower interest rate you may not have qualified for before, but do now. You’ll only have to deal with whatever fees or charges your new card requires and which you’ve decided to accept. You’ll gain whatever benefits your new card includes. Some even offer special deals for transferring your balances to them, so make sure you examine all of your options.
You now have a degree of credit card debt relief. Of course, the debt hasn’t gone away – it’s just been rebooted on better terms. That’s a good thing, but it’s not magic. It’s essential you make those new payments faithfully – on time, every time. That’s part of rebuilding your credit history and taking control of your finances.
Leave Your Account Open Helps Your Credit Score
Some folks choose to close their old credit card accounts after transferring their balance to a new card. You can certainly do this if you wish. It eliminates any temptation to use these higher interest cards again. If you believe you’re capable of managing the temptation, however, consider locking those cards in your safe instead.
Leaving the account open, even if you don’t have a balance, helps your credit score. “Available credit” or “debt to credit ratio” is one of the things most credit rating systems factor in to determine your 3-digit credit score. That means even if your balance stays the same, the fact that you now have more credit AVAILABLE to you, which you’re not using, bumps up that score.
Why does that matter, you might ask? It’s not just for bragging rights. Eventually, you’re going to want to finance a vehicle, or take out a personal loan to pay for a wedding, or buy a home, or...? When you begin the process for whatever that might be in a year or two or five or ten, your credit rating plays a major role in what sort of interest rates you’ll be able to secure, and sometimes whether or not you can even borrow the full amount. Even a percentage point or two can mean thousands of dollars difference over the life of a loan – and those percentages are largely determined by your credit rating.
On the other hand, if you know you’ll just be tempted to use the cards, don’t hesitate to close them in hopes of helping out future you. Running up old cards after taking out new debt to pay them off will do far more damage to your credit history than simply closing those accounts. It’s all about what you decide works best for you and what’s realistic in your situation. Remember, our goal is credit card debt relief. Whatever it takes to get us there legally and realistically is what we’re going to do.
Cancel This, Reduce That
There are times we have to get serious about cutting our expenses if we’re going to have any hope of credit card debt relief or take control of our finances. Sometimes that requires extreme measures and seriously tough choices, but those aren’t what I want to talk about here.
Unnecessary Subscriptions
Do you look over your statement every month before you pay your credit card payments? Whether on paper or online, you really should. If you’re not sure what a charge is, go back and investigate it. I realized this past summer that over the years I’d subscribed to digital services and periodicals that I hadn’t read or accessed in months – sometimes in years. Every three, six, or twelve months, there’d be some mysterious charge for something I’d forgotten about. By the time I figured out what it was, it was already charged, and I figured I’d take care of it before it came around the next time.
Then, of course, it came around the next time and I merely repeated the process.
If you’re using a service or really want a product, that’s your call. But a few dollars here and a few dollars there, especially when being charged on top of one another on a high-interest credit card, can end up putting a real drag on your efforts to achieve credit card debt relief. It may be tedious, but it’s worth tracking down those miscellaneous subscriptions and other charges and canceling anything you don’t really use.
The other often-overlooked place to save essential dollars is in the details of our phone plans, TV packages, or other entertainment and communication services. These are things you may decide you want to keep, but might not even remember exactly what you signed up for however long ago it was. Are you watching that sports or movie channel package you tacked on for $4.95/month which has since gone up to $19.95/month? Do you actually use that unlimited high-speed data on your phone, or is it just running your bill up an extra $10/month?
Again, if you’re using it, and can afford it, feel free to keep it. This isn’t about guilt or suffering unless things are bad enough that we have to go full austerity across the board. It’s about easy savings which are currently being wasted. If it were water leaking from a basement pipe or a two-inch gap in an upstairs window during a winter storm, you’d find a way to seal off the damage. This is just as fixable, and in many ways even more important as it adds up month after month, year after year.
Credit Counseling or Other Professional Help
If you’re not confident in your ability to make that budget, sort out those bills, you might want to consult a local debt service. These vary from place to place, but there are usually reputable organizations in a town of any size who can refer you.
Negotiate Your Credit
We’re not talking quickie-fixes here, and you should be very careful about anyone wanting to charge you upfront or promising you unrealistic results. The best services will require you to complete some financial literacy courses or meetings with a credit counselor. Swallow that pride and take full advantage of the opportunity. Many of them will reach out to your creditors and begin negotiating payoff amounts, reduced monthly payments, or other compromises which hopefully make your life easier and help reassure lenders that they can still get back most or all of what you owe without sending you to collections.
It takes time, but it’s doable. I can verify this as someone with firsthand experience. At first, it seems like it will take forever and might never end. One day, though, you start to realize there are several things completely paid off. You notice that you have a workable budget and that while you’re watching your spending, you’re not suffering as much as you anticipated. Eventually, your last payments are made and you have a chance to do things a bit differently going forward. That’s made easier by the fact that, if you’ve been working the program, you’ve already begun.
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If you’re comfortable going in it alone, that’s OK, too. We may still be able to help. In addition to our ability to connect you with online lenders, our educational blogs, and various websites devoted to different facets of personal finance, we have practical online tools like loan planners or debt repayment calculator. It’s all free, it’s all connected, and it’s all about you having choices and being in control.
Conclusion
Credit card debt can be crushing. The fact that it’s so common doesn’t always make us feel much better, but guilt makes a poor long-term motivator. Regret is useful as a teacher of what not to do again – after that, it’s usually just in the way.
Let’s focus instead on what you can do TODAY, moving forward. It won’t all be fixed immediately. It won’t all be pleasant. But it’s all doable, it’s all manageable, and it’s all so very worth it. Let us know how we can help, and let’s get started.