What to Do When You’re Drowning in Credit Card Debt

Most Americans have debt to some degree nowadays. But there’s a huge difference between carrying debt and being overwhelmed by it. Unfortunately, many borrowers are finding themselves struggling with financial obligations — particularly those known to carry high interest rates, like credit cards. What can start out as normal spending can become expensive and out-of-control very quickly when average annual percentage rates (APR) between 15 and 23 percent accumulate on those balances.

What are your options when you’re drowning in credit card debt?

These actions may help the situation.

Put All Your Debts on the Table

The first step toward getting a game plan is taking stock of all your debts. This can be daunting, especially if you’re not currently sure exactly how much you owe and to whom. As tempting as remaining in debt denial can seem, putting all of your debts on the table is a major step toward taking back control.

Many people find it helpful to enter all their debts into a single spreadsheet, with separate columns for balances, minimum payments due and APR. This makes debt easy to compare and prioritize as needed.

For instance, ordering and tackling debts from highest interest to lowest interest will help you attack balances with an “avalanche” mindset with the goal of lessening interest payments.  Ordering and paying down debts from smallest balance to biggest balance represents a “snowball” mindset that can help you build up confidence and momentum. Always be sure to keep up on minimum payments to avoid delinquency, regardless of your payoff plan.

Get a Spending Plan

Besides optimizing how you’re paying off debts, it’s also important to address your spending habits. While you’re logging your debts — an important first step in budgeting — log your income and other monthly expenses, too. Now you have a working budget off of which to understand your spending patterns and streamline where possible.

Here are some rules of thumb outlined by CNBC to avoid increasing your existing credit card debt:

  • Spend on credit only what you can pay off each month — similar to how you’d use a debit card.
  • Wait a certain amount of time (like 24, 48 or 72 hours) before making a purchasing decision. This will help weed out impulses.
  • Use an expense tracker app to get a detailed view of your spending and help you stick to your budget.

Debt repayment and smart spending go hand in hand to help you dig yourself out of the pit of debt. Trying to pursue one without the other will lessen the impact.

 Investigate Options for Debt Relief

Sometimes chipping away at debts little by little doesn’t get you very far on its own, especially if you’ve amassed a serious debt load. This is precisely why different debt relief options exist, like:

  • Balance transfer cards: Transferring your balance to a new card with a promotional offer of low or zero-percent APR can give you time to pay down your balance without growing more interest. Always read the terms and conditions carefully. 
  • Consolidation loans: Getting a loan with a lower APR than your credit card debts to wipe them out all at once can make it simpler and less expensive to pay back debt. It also gives you a fixed timeline. Plug your info into an online calculator first to make sure you’ll actually be saving money based upon the APR for which you qualify. 
  • Debt settlement: Try to negotiate with creditors, on your own or through a debt relief program, to get them to accept a portion of your full balance as a resolution. Research the advantages and disadvantages in full before moving ahead. 
  • Debt management: Work with a credit counselor at a counseling agency, who will act as a middle-person between you and your creditors — possibly earning you a break on interest and fees. 
  • Bankruptcy: The most drastic solution, bankruptcy may absolve you of much of what you owe. There are consequences, though, like significant credit score damage. 

When you’re drowning in credit card debt, pause. Take stock of your debts. Get a plan for repaying them and modifying your spending. Consider debt relief if needed. These efforts will help you work toward regaining financial control.

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