Strategies for Dealing With Credit Card Debt

Debt Management Plan

The debt management plan is an option that is commonly offered by credit counseling services. With this plan, you allow the credit counseling service to negotiate with your creditors. The counseling service negotiates a lower interest rate for you and then sets up a monthly payment. You pay the credit counseling service a set amount each month and then they pay your creditors for you. During this phase, you cannot take on any more debt. You will typically pay off your credit card debts within three to five years under this plan.

Another strategy that you could use to attack your credit card debt is consolidation. With this strategy, you take out a loan and pay off all of your credit cards. Then you only have a single payment to make every month. One benefit of using this strategy is that it simplifies the issue and allows you to apply any extra money to the balance. If you use a home-equity loan to consolidate the debt, you can also deduct the interest that you pay on your taxes.

The debt snowball method is another strategy that you could use to successfully get out of credit card debt. With this approach, you make only the minimum payment on the majority of your credit cards. Then on the card with the smallest balance, you apply any extra money that you have to the balance. This helps you pay off the smallest card first. Then, any money that you would have been paying to the smaller card can then be applied to the next smallest card balance. With this strategy, your payment continues to get bigger and bigger until your debt is gone.

Another option that you could pursue to get out of credit card debt is debt settlement. With this strategy, you agree to pay your creditors a specific lump sum of money and then your creditor closes out your account. This allows you to pay much less than what you owe on the balance of your card. This strategy can save you money but it also severely damages your credit score. You have to be several months behind on payments before a creditor will consider this, which means you will miss some payments and hurt your score.