How to Get Out of Credit Card Debt

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In many ways, credit cards are the most insidious type of debt. Student loans, mortgages, and auto loans produce something resembling an asset, but the purchases we make with credit cards are often the ones we regret the most. And since credit card interest rates are higher than most other forms of borrowing, those monthly payments can really sting. If you want to learn how to get out of credit card debt once and for all, you’ve come to the right place. Here’s a reliable system for paying off your debts as efficiently as possible.

1. Evaluate Your Financial Situation

The best thing a person can do to get control of their finances is also one of the simplest: track their expenses, income, and savings down to the dollar.

It doesn’t matter whether it’s in a spreadsheet, a notebook, or an app like Mint. Just record all the places that cash comes in and goes out in a way that makes each transaction easy to review.

Usually, tracking expenses is the hard part. People tend to have a pretty good idea of how much money they make. It feels good to see money come in, so they naturally like to keep track of it.

But admitting how much money is going toward Mexican food and clothes each month is a lot less pleasant. It’s stressful, sometimes even embarrassing, but ignoring the problem is a surefire way to make it worse. Money management is usually more about psychology than financial complexities, and this is one of those times.

Evaluating the current landscape is a critical first step in every successful attempt to get out of credit card debt. Without it, there’s no way to formulate a realistic plan for paying anything off.

2. Free Up Cash With a Budget

With a clear understanding of their current financial situation, anyone can rework their activities into a budget that makes sense. Here’s the best way to go about it:

  1. Set a debt payment goal: Haphazardly trying to spend less and putting the extra savings toward debts isn’t an efficient strategy. Instead, work backward from a realistic goal. Commit to a total monthly payment, then create a budget that frees up enough money to reach that target. The goal should be big enough to make meaningful progress toward getting out of debt, but not so much of a stretch that it becomes unreachable.
  2. Cut unessential spending: The best place to start cutting back is to eliminate any unnecessary spending. Cancel unused subscriptions, dial back on shopping for clothes, and try to eat in whenever possible. Leave just enough room in the budget to still enjoy life.
  3. Work toward bigger wins methodically: Unfortunately, reducing unessential spending usually isn’t enough. To get out of debt quickly, people may need to cut expenses like housing and transportation. Getting another roommate or reducing a work commute takes more time than eating out less, but it’s much more financially rewarding.

When building a budget, people always need to find a balance with their spending plans. Cutting back too much increases the chances of failure, but cutting back too little won’t get anyone where they want to be. Try to find the sweet spot between the two.

3. Choose a Debt Paydown Strategy

Paying down credit card debt can be a test of endurance, especially if the balance has been racking up interest for a long time. There are two common ways people use to go about paying off debts efficiently over the long run.

Both of them will work eventually as long as the user sticks to them. The choice between the two usually comes down to preference. Here’s what they are, how they work, and who they’re best for:

  1. The Debt Snowball: Make minimum payments toward all accounts, then put all excess cash toward paying off the smallest debts first. The strategy is best for those who want to build momentum early and need to feel like they’re making progress by paying off accounts.
  2. The Debt Avalanche: Make minimum payments toward all accounts, then put all excess cash toward paying off the debt with the highest interest rate first. The avalanche strategy is the one that will save a person the most amount of money and eliminate debt the fastest. For those who don’t need the extra motivation of the debt snowball to stay the course and get out of credit card debt, it’s a better choice.

Don’t worry too much or too long about picking the perfect paydown strategy. The key to successfully get out of credit card debt is steadily paying down debts without stopping. It doesn’t matter that much in the long run which debts people target first.

4. Get Your Creditors on Your Side

People who are struggling to make their payments should contact their lenders as soon as possible. Creditors can make or break an attempt to get out of credit card debt. Paying late or failing to pay entirely can cause lenders to take action that makes things much worse.

Remember, creditors just want to get their money. They don’t want to have to harass their borrowers about making payments or sell their accounts to creditors. Borrowers that are proactive about communicating with their creditors are much more likely to get help or forgiveness from them.

Credit Card Debt Relief During COVID-19

Due to the COVID-19 pandemic, most lenders are offering additional debt relief options. They may allow people to pause their interest accruals, lower their monthly payments, or work out repayment plans.

chase credit card debt relief for covid 19

Those who have lost their job because of COVID-19 or got sick and found themselves unable to bring in money should definitely reach out to their creditors for help. Check out their websites to see if they have any resources. Even if they don’t, it’s still worth giving them a call and asking for assistance.

5. Find Help If You Need It

Sometimes it’s not possible to get out of debt without a little help. Fortunately, there’s a wide range of debt relief options out there.

Many of them can be a helpful tool in the right circumstances, but they can also quickly backfire on those who use them at the wrong time. Make sure to understand all their implications.

Here are some of the best debt relief options to help people get out of credit card debt:

  • Debt Consolidation: Consolidation is best for those that are just looking for some extra breathing room with their monthly payments. It can combine several debts (including credit card debts) into a single account. Usually, that’s either a debt consolidation loan or a balance transfer credit card.
  • Credit Counseling: Credit counseling is one of the safest and most affordable debt relief strategies around. It gives people access to financial experts that specialize in credit-related issues. They can identify financial weaknesses, create budgets, and help clients get out of credit card debt. Even better, their advice is usually free.
  • Debt Management Plans (DMPs): DMPs are usually a service that credit counselors provide, though private companies sometimes do as well. They’re not free, even when run by a credit counselor. They involve the borrower making a single monthly payment to the service provider, who will use that to pay all their creditors while attempting to negotiate better terms with them.
  • Debt Settlement: Settlement is one of the more drastic types of debt relief. It’s not quite on the level of bankruptcy, but it can be almost as damaging to a person’s credit. It generally involves stopping all monthly debt payments and attempting to convince creditors to let the borrower pay off their debts for a smaller amount than they owe. People can execute the strategy themselves or hire a private company to help them.
  • Bankruptcy: Bankruptcy, the last and most drastic form of debt relief, is not to be taken lightly. It can wipe out most types of unsecured debts (including credit card debt) and give people a fresh start. But it also has long-lasting effects on a person’s credit score, and it’s not free. There are multiple types of bankruptcy, so make sure to see which one makes the most sense before filing.

Don’t commit to any of these debt relief options before thoroughly explore all of them. Also, know that not every debt relief provider is trustworthy. There are a lot of scam artists out there that look to take advantage of people who are struggling financially. Learn to spot the red flags and stay safe.

6. Build Your Financial Resilience

One of the most critical markers of a successful attempt to get out of credit card debt is avoiding any further debt. The only way to do that is to eliminate the bad habits that caused the original credit card debt to get out of hand.

Usually, that includes things like:

  • Overspending on small, unnecessary expenses
  • Purchasing too much house or car
  • Taking out debts that are too large or too expensive

Keeping a budget is a great way to avoid most of these issues. But spending less isn’t the only way to improve your financial resilience. Once you’re successfully on your way toward getting out of credit card debt, check back in with your income, expenses, and savings.

Look for any areas that you could optimize for further stability. Try to earn more cash, create a solid emergency fund, and learn how to invest for solid returns. All of those will help you get out of credit card debt faster and stay out of it forever.