Overcoming Credit Card Debt: A Step-by-Step Guide

Whether you owe a lot or a little, paying off your credit card debt is always a good idea. Before and after a big purchase, whether you’re using it to pay bills and groceries, or even if you’re just using it for points. Make sure the board is clean as often as you can. And if you can’t do that, consider using less credit if you can.

Approximately 60% of Americans live paycheck to paycheck, as reported by Pimnts.com. And as inflation continues, credit card users continue to struggle to make ends meet minimum paymentswhich leads to damage credit scores and the increased interest which consumers will have to pay.

The average credit card balance for Americans is $5,910according to CNET sister site Bankrate. And there is growing concern that many credit card accounts will become delinquent as borrowers fall behind on payments.

If you’re struggling to make your credit card payments, we’ve got some options that can help you stay on your toes as you try to pay your bills. For more, here best credit cards to pay off debt.

1. Call your credit card company and explain your situation

As soon as you find out that you will not be able to make the minimum payment, contact your credit card company so that they are aware of your situation. If a company is not aware, it could assume the worst and take action. Notifying your credit card provider can help avoid any bad consequences and keep you in control.

Your credit card company may be able to set up a payment plan that you can afford. The lender may also be able to move your payment due date so that it works better with your salary. It may also be possible to negotiate lower APRs — the annual interest you pay on your credit card balance.

Whatever you do, get the details in writing. Bruce McClary, senior vice president of communications at National Foundation for Credit Counselingtold CNET that you should be sure to get official confirmation and terms of any changes to your account from your credit card issuer in case things don’t turn out the way you thought.

A credit card issuer may also have relief or hardship programs (see below) that hurt your credit score less than delinquency (a late account) or holding your account chargedmeaning it is written off as a loss and closed for future expenses. When this happens, your credit utilization ratio increases, which can lower your credit score. It can also lower your credit history, which affects your credit score.

2. Try credit counseling or a debt management program

Another option for help with credit card debt is to look for nonprofit credit counseling agencies or debt management programs that can help with budgeting.

“A debt management program allows you to get back on track affordably within your budget, and you’ll also benefit from reduced payments and interest rates until you pay off your bills,” McCleary explained. These programs can help you find a long-term solution with your creditors based on your budget, making payments more sustainable. They can too negotiate with creditors on your own behalf to create a new payment plan.

Rod Griffin, senior director of consumer education at Experian, suggests contacting your state attorney’s office or Institute for Consumer Financial Protectionas well as checking consumer.gov for all your local options.

3. Rework your budget and find places to save or earn more

If you encounter budgeting problems that make it difficult to pay your bills, consider cutting all unnecessary monthly expenses and applying for government assistance. There are programs that can give you a supplement to pay your energy bill – for example, Low Income Home Energy Assistance Program. States also offer rental assistanceas well as Temporary help for families in needwhich helps with food, housing, energy in the home, childcare and job training.

Then consider cancelling streaming services or cable, reducing shopping and returning unnecessary recent purchases. Try to eat more often at home and reduce the number of restaurants and coffee specialties. If possible, work from home save money on gas. You can also use “pay as you go” car insurance option if you don’t drive often. These small changes may not be enough to cover your bills, depending on how much you owe, but the money you save can still add up in the long run.

Once you discover your savings opportunities, start looking for additional ways to earn more money on the side. Go through your unwanted storage closet and used electronics and list them for sale on apps like eBay, Mercari, and Poshmark. You could start a side hustle or sign up to be an Uber or Lyft driver. You can also rent your own car Teaching when you are not using it.

4. Transfer your balance to a 0% introductory APR credit card

If your credit score is still good enough – for example, you haven’t missed a payment yet – consider applying for 0% introductory APR credit card i transfer of your balances. You’ll typically need a credit score of at least 670 to qualify for one of these cards, but switching your credit card debt to a 0% introductory APR card can save you time and money when trying to pay off credit card debt.

However, if you’re already struggling financially and can’t make your current minimum payment, this may not be the best option for you as you’ll still be expected to make payments on your new card, even during the introductory period. If you don’t, your 0% APR period may end early.

If you can’t get approved for a 0% introductory APR and have multiple credit card balances, consider applying for debt consolidation loan. Your debt will still accrue interest, but you’ll only have one payment and could get a lower rate overall.

Disadvantages of credit card hardship programs

Although you won’t advertise them much, many lenders offer hardship programs to help you pay off credit card debt. Terms vary by lender, but may include options such as skipping payments or lowering your minimum payment or APR. Generally, you need to apply for the program by contacting your lender, but it can be certain provisions. For example, you may need to prove that you have a disability.

However, the programs have several drawbacks that can damage your credit score. Here’s what they are.

1. Settlement of the debt for less than originally agreed

If you settle your debt for less than originally agreed upon — for example, if your original debt was $15,000 but you settled for $10,000 — it could damage your credit score because you defaulted on your original obligation. On the other hand, McClary adds that while you’re focused on paying off your credit cards, you should prioritize debt settlement over your credit score—paying off debt will have a much bigger long-term effect than obsessing over isolated components of credit. .

2. Issuers may reduce your credit limit or close your account

The credit card company could lower your credit limit or even close your account while you’re paying, both of which will hurt your credit score. A lower credit limit would affect your credit utilization ratio (the sum of your balances compared to your credit limits) – which is the main part of your credit score – as your total credit used will increase.

If your account closes later, your average credit age (the length of all your accounts divided by the total number of accounts), another component of your credit score, will decrease. Your credit utilization ratio and the length of your credit history are two important factors in your credit score.

3. Generally, applying for a hardship program

Just signing up for a hardship plan could indirectly hurt your credit score, WalletHub analyst Jill Gonzalez told CNET. “Your credit card issuer may place a note on your credit report that can alert other potential creditors to your financial problems.”

Because of the potential negative consequences of hardship programs, Griffin says it may be best to work through a good assistance program with a financial advisor.

For more information, here how to get out of credit card debt. Also, here what you need to know about debt consolidation and how it hurts and helps your credit.

If you want to build your bad credit but need the tools, check out our recommendations for best credit cards for bad credit and the best credit cards for fair to average credit. Using these cards in conjunction with best practices for increasing credit will help insulate your financial position.