As much as we talk about investing, increasing income, and even travel hacking on the blog, it’s important to recognize the fact that many people’s finances revolve around one thing: credit card debt.
Millions of Americans are in some form of debt. Debt can have a huge impact on quality of life, and is the source of stress for many people.
It’s important to recognize that not all debt is the same. Some debt has rock-bottom interest rates (as low as 0-3%), while other debt such as credit card debt has a very high interest rate.
Today I want to discuss what to do if you are in credit card debt. Credit card debt is something that needs to be addressed, and thankfully there are many actions that can be taken to reign in credit card debt and move forward.
1) Seek Help
Many who are in credit card debt avoid confronting the reality of their situation. It’s also common to “keep it to yourself” and not share your situation with others. This is common behavior, but it also prevents people who are in credit card debt from taking steps towards fixing their problems.
Seeking help is essential for anyone who has gotten themselves into credit card debt. After all, there are millions who have successfully gotten out of credit card debt – why not trust the organizations and companies that specialize in helping those who are in credit card debt?
One organization I have heard a lot about is Care One Debt Relief Services. They even helped a fellow personal finance blogger get out of over $100,000 of debt. Care One’s founder started the company because of the bad advice he received when he himself was having trouble with debt.
Seeking help doesn’t necessarily mean friends or family. Finding a company or nonprofit that will help lower your debt total and lower your interest payment is a great source of help and expertise.
2) 0% Transfer Credit Card Offers
Credit card companies are desperate for customers. After all, there is very little difference from one credit card company to the other. Because of this lack of differentiation they typically provide very good promotions to new customers.
One of these promotions are 0% transfer credit card offers. If you transfer your current credit card balance from an existing credit card to a new credit card, many credit card companies will give you a grace period where you have 0% interest. This can be for as much as 18 months.
The reason why 0% transfer credit card offers are so desirable is because it gives breathing room to the debt holder. During those 18 months you may be able to pay off most – if not all – of your credit card debt. Even if you can’t pay off the entire balance, the lack of interest charges will allow the debt holder to make larger payments towards the balance.
Keep in mind that there are oftentimes fees that come with a balance transfer. These can be between 3-5% of the balance being moved. So if you have a $1,000 balance being moved, you may have between $30-$50 added to the balance. That’s nothing to be worried about, though, because it’s well worth having the 12-18 months of 0% interest.
3) Get a Debt Consolidation Loan
I talked to an acquaintance recently who took the first step (seek help) and worked with a Christian nonprofit debt relief company who negotiated his $23,000 of debt to less than $12,000. This significantly cut down the monthly payment as well as the length of his debt repayment plan.
Finding a company or organization that can negotiate on your behalf is a great way to be proactive about dealing with your debt. You may be surprised what help you are able to find, especially when companies are able to cut down your overall debt load as well as the time it will take to pay it down.
If you don’t feel comfortable seeking help from others but still want to cut down the interest rate of your credit card debt there is a do-it-yourself option: peer-to-peer lending (P2P).
P2P lending sites like Prosper provide loans to people with anywhere from excellent to terrible credit. The interest rate is higher for those who have bad credit but it still typically is less than the 20+ percent rates that people get who are carrying a credit card balance month-over-month. Consider checking out Prosper to find out what sort of rate you can get on a loan.
4) Become Vigilant about Tracking Spending & Income
The next thing I suggest for those who are in credit card debt is to be vigilant about tracking your spending and income. The reason this is important is because cutting expenditures is one of the best ways to find money to pay down debt. If you don’t know what you are spending on a weekly and monthly basis it’s hard to identify areas where you can cut back.
Tracking spending and income is a little more difficult than it sounds but it by far one of the best things you can do for your financial health (regardless of whether you are in credit card debt or not). Taking the time to track your spending and income will help you pay down your credit card debt faster.
Start by listing out all of your accounts that you charge to each month. Set a date to download your spending history from the prior month (I typically do it the first weekend of a new month). Be sure to also keep track of any cash expenditures. Assign a category to every dollar you spent (i.e. Groceries, Cell Phone, Restaurants, etc.). Consolidate all the information in an Excel spreadsheet and review each spending category.
This will help you identify what spend categories you are spending too much money on. Perhaps you can shave $100/month off your groceries or $150 a month off your entertainment budget? Take the time to analyze and scrutinize your spending. Any extra dollar you can find to put towards credit card debt helps you achieve your debt-free goal faster.
5) Increase Income When Possible
Some people simply can’t increase income, but for a majority of people there is always something they can do to increase their income. This does not necessarily mean getting a new job or asking for a raise at work, though that certainly would help.
There are many ways to make money in addition to your 9-5 job. This may mean working at a retail store on the weekends or freelance writing. Shannon from Financially Blonde wrote about how one of her clients was not going to be able to afford a vacation they had been looking forward to. The client decided to take a job working at Target on the weekends and was able to divert 100% of that money towards the vacation.
While working an additional job to pay down credit card debt may not sound ideal, it will definitely get you to your debt-free goal faster. In fact, another blogger did just that when they took on a second job as a pizza delivery driver. This blogger’s goal was to move his family abroad to be full-time missionaries, but their debt stood in the way. By working tirelessly at his 9-5 as well as his second job delivering pizzas, he was able to accomplish this goal.
The moral of the story is this: if you’re able to increase income, do it! How you do it isn’t as important as whether you do it or not. Spend some time thinking about how you can increase income – even if it’s temporary – to pay down your credit card debt.
6) Don’t Let Debt Define You
Having credit card debt can be both stressful and depressing. It can feel like a huge weight is constantly on your shoulders, especially if you have no clear path for getting rid of it. Dwelling on the past isn’t a productive use of your time, though, and it’s important to look at what can be done today to get rid of your credit card debt.
I want to end this post on an encouraging tone because it’s extremely important for people with credit card debt to remember that debt doesn’t define you. While having credit card debt may impact your lifestyle and mindset, it shouldn’t define who you are as a person. Make a plan for how you can get rid of credit card debt and be vigilant about sticking to that plan.
What advice do you have for those who are in credit card debt? If you’ve gotten out of credit card debt in the past, what worked and what didn’t work for you?
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Greg had credit card debt when we started dating. He paid it off after we transferred his balance to one with 0% interest for 12 months!
All solid tips DC. When I was in credit card debt it was finally owning up to the situation I was in and seeking help that really started me down the path towards paying it off. Thankfully I was able to transfer the large majority of it to 0% cards so that helped a ton it knocking it down.
I’m so grateful this has never been a problem for me. My biggest financial hurdle was limited income, so for me, increasing income is always a good solution :)
This is great advice DC!!! For my clients who have credit card debt, I try to get them to focus on the two pronged approach of controlling costs while trying to grow their income. It does stink to have to work another job when you already have a full-time job, but the only way you can really get out of debt fast is to work hard. My clients who are able to do both, not only get out of debt faster, but they start working toward their future and it feels better mentally to prepare for the future rather than deal with the past everyday.
Great to hear about your success in using a 0% interest transfer! I think a lot of people in credit card debt don’t realize that there may be an option to transfer the balance to a 0% card. It can at least give you a little breathing room while you create a plan to tackle the debt.
Good to hear about your experience with the 0% transfer. I think more people should consider using this strategy in combination with making a solid plan for getting rid of their debt.
Increasing income can only help a financial situation! It may take more time and sacrifice, but it certainly won’t hurt your bottom line.
I imagine you’ve worked with many clients in this situation. I think getting a part-time work to help boost debt paydown is a great approach. I did this (in a way) with my blog and freelance work and it’s greatly benefited my wife and me while we pay down student loans.
This is fantastic! I love that you touched on the 0% transfer cards. It’s not often that you see that mentioned!
I think this is implied in your post, but the most important step in paying off debt is a commitment to making big payments to principle. This obviously may include the steps you’ve mentioned.
But a focus on lowering interest rates, consolidation, side income…while these are incredible tools, I’ve often seen people in debt do these things, and then avoid the obvious step of using their new-found wiggle room to actually reduce their principle.
Ironically, these strategies are sometimes used to procrastinate about paying down the debt.
Brandi_P Thanks! I’m glad you enjoyed it. I think the 0% transfer cards were important to mention. After all, they can literally save someone hundreds (or thousands) in interest and give people some breathing room.
DonebyForty Yes, I implied that people were actually committed to getting out of credit card debt. I also agree that you can use these to procrastinate paying off debt, but people need to be aware of these options regardless.
I think making more money is the biggest thing you can do to pay off any kind of debt. Cutting back and tracking spending only goes so far.
Great tips, DC. I see lots of people hide behind the shame of their debt and I understand. We do it to ourselves and that can be hard to face but it does not make them a bad person at all. As you said, seeking help can truly make a difference because you not only release the burden but now have specific steps you can take to help you get in front of this. I also think it’s critical to examine why you got in debt in the first place. Emotional spending? Keeping up with the Joneses? Lack of an emergency fund? Because unfortunately getting debt free doesn’t guarantee you won’t go back in debt again.
I’ll add to #4 about being vigilant that we have to be sure not to become addicts! Just as people can have problems with not knowing what they spend, it can also be a problem to obsess over and constantly be reviewing our budgets…not that I speak from experience or anything.
Excellent post. For me increasing my income has helped a lot. I need to check into some 0% transfer credit offers. I wonder if your credit needs to be sky high for you to be approved?
Eyesonthedollar I agree! I wrote a post about that just a week or two ago. I think it’s an important thing to do, though I think it is important to do it in conjunction with cutting expenses where possible.
ShannonRyan Great point, Shannon. It’s important to spend some time reflecting on how you got to where you are, and how you can avoid/address the underlying cause in the future.
Jason @ The Butler Journal Thanks Jason, glad you enjoyed it. I don’t think you need sky high to credit to be approved. If so, there would be a really small pool of people who would actually use it (since you’d need a balance in the first place).
Mark@BareBudgetGuy Good point, Mark! I think a lot of people go too far in the opposite direction. It’s not a terrible thing, but it can alienate others who do not share your love of budgeting.
DC @ Young Adult Money I will be checking into this week. I pay way too much in interest on my BOA credit card.
Hey DC,
Top article as per usual, what are your thoughts on the whole Dave Ramsey’s debt snowballing method? I like this as it creates the psychological notion of smashing the debt however could always generally look to pay off the highest debt first..
I’d say 4 and 5 of your above tips are great as well, always about earning more income! :)
I’ve always tried to use credit cards as a tool to improve my score and not rely on them so much for spending (but I’ll admit it’s super hard) so I’ve never had a credit card balance I couldn’t handle in a month or two. But when it comes to just debt in general, I know all too well how it can make you feel trapped and let down. Not letting debt define you is so important because if you desire to be debt free and have a plan, you can become debt free eventually. Increasing my income is working best for me because it’s allowing me to make extra payments and speed up the repayment process.
It’s hard for me to imagine what being in serious credit card debt would feel like, but seems like your first and last pieces of advice around getting your attitude in the right place to tackle the problem is key – then there are many strategies you can employ. Tracking your finances is bound to shine a pretty bright light on the problem areas too!
I’m taking advantage of 0% Transfer Credit offer now to help me deal with my credit card debt. The offer I have allows a 0% transfer fee and a 0% APR for 18 months on my transfer balance. I found that it was rare to find a card that offered a 0% transfer fee. Transfer fees can cost you as much as 5% of your transfer balance and so i feel like I really lucked out!
Jason @ The Butler Journal DC @ Young Adult Money Nice, yeah at least check it out. Worst case scenario you get declined.
mycareercrusade Oh man, top article? Thanks for the kind words! I won’t take them for granted.
I know a little about Dave Ramsey’s approach, but not a lot. I need to read his book (it’s on our shelf – my wife won it in a giveaway). I think it’s always good to get rid of debt, so it’s hard to talk bad about him.
I’m curious what tip you don’t like ;)
Chonce Thanks for sharing your thoughts! The reason I brought up extra income is because of how much it’s helped my wife and me over the past couple years. Having “extra” income means you can use it for whatever you want – including making extra debt payments!
Jason@Islands of Investing I agree, attitude is really important. Being aware of strategies – such as utilizing 0% interest rate credit cards – is an important part of paying down debt.
The Finance Phoenix If you don’t mind sharing, what card did you use? You’re right that there is typically a transfer fee, but the amount you save from avoiding the high interest rate can really pay off.
DC @ Young Adult Money The Finance Phoenix I transferred my funds to Chase Slate Card. You get a period with 0% APR and there was no transfer fee. I searched for a while. It was perfect. It is really helping me to keep ahead on my credit card payments.
These tips are right on point, DC! I’ve never personally had credit card debt, but my Husband did and we actually just recently paid it all off.
We implemented a few of the strategies you mentioned above (although could have really used this post at the time to be honest!), and found that just keeping positive about the situation was the biggest part of succeeding in paying it all off. Knowing that eventually we WOULD pay it off and wouldn’t be holding this debt forever kept us going and motivated to save in all areas of our life to pay it as quickly as possible.
Embracing @ Embracing Simple Congrats on getting that paid off!
Brandi_P Embracing @ Embracing Simple Congrats! Great point about staying positive and finding motivation through your attitude.
Brandi_P Thank you!!
DC @ Young Adult Money Brandi_P Thanks DC!
The Finance Phoenix DC @ Young Adult Money Good to hear! Thanks for sharing.
DC @ Young Adult Money mycareercrusade Yeah sure it’s an interesting book, the Dave Ramsay one although it is more likely for the starters with finance, although I always find you can learn something from everything you take on board
Would you like me to let you know when I don’t like something :P haha?