Credit Card Debt Help: Best Strategies By Situation

If you're overwhelmed with credit card debt, there are strategies that can help you tackle your debt, including DIY debt payoff strategies, bankruptcy, debt consolidation or debt settlement.

Here's where to start:

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Key Takeaways

• DIY payoff works if you can cover more than the minimums. The debt snowball targets your smallest balance first for quick wins, while the debt avalanche targets your highest interest rate first to minimize total interest.

• A balance transfer can pause interest — if you have good to excellent credit. Moving debt to a 0% intro APR card can eliminate interest during the promotional period, typically 12 to 21 months, though a 3% to 5% transfer fee applies.

• Debt consolidation simplifies multiple payments into one. A consolidation loan or balance transfer can lower your rate if you qualify, but watch for origination fees and longer terms that raise total cost.

Summary generated by AI, verified by MoneyLion editors

How To Get Help With Your Credit Card Debt

DIY Debt Payoff Strategies — Debt Snowball

• How it works. List all of your existing debts. Make minimum payments on all your debts and put any extra money toward the smallest balance. Once that balance is paid off, you target the next smallest balance.

• What amount of debt is this the best strategy for. If you need motivation and small wins, this approach can help you tackle your debt. Also, if you have multiple small debts, it can be an effective strategy.

• Pros. Paying off a debt gives you a sense of accomplishment; you simplify debt by eliminating bills that you’ve paid off.

• Cons. You ignore interest rates, which can be more costly in the long-run. You may pay less in interest with the debt avalanche approach.

DIY Debt Payoff Strategies — Debt Avalanche

• How it works. List all your existing debts. Make minimum payments to all debts. Any extra money will be dedicated toward the balance that has the highest interest rate.

• What amount of debt is this the best strategy for. It’s good for most debts. However, if you have several high-interest debts, it’s a good approach to prevent interest from compounding.

• Pros. You get the most expensive debt out of the way first; this minimizes interest in the long-run.

• Cons. This approach requires more self-discipline. Progress seems to move slowly.

Balance Transfer

• How it works. You open a credit card with a 0% APR promotion and transfer your existing debts onto it. The goal is to pay off the credit card within the promotional period (typically 12 to 21 months).

• What amount of debt is this the best strategy for. This approach is best for those who can pay off the balance during the promo period. It’s ideal for those who have good credit.

• Pros. Consolidates debts into one payment, eliminates interest entirely, creates a definitive payoff deadlines.

• Cons. Requires excellent credit, strategy is only good for those who can pay off the debt entirely during the promotional period, opening a new credit card can trigger a hard inquiry on your credit

Debt Consolidation

• How it works. You can combine multiple debts (personal loans, credit card balances and other unsecured debt) into a new loan that is a lower interest rate.

• What amount of debt is this the best strategy for. This is good for borrowers who have debts between $5,000 to $50,000. It’s best for those with excellent credit.

• Pros. Simplifies multiple payments into one debt with a fixed payment, and you can stop the revolving debt from compounding.

• Cons. You need good credit to access best interest rates, you have to pay origination fees, you may be tempted to charge on existing credit cards since they remain open.

Financial Counseling

• How it works. You meet with a certified debt counselor at a nonprofit agency who reviews your financial picture and makes recommendations on what you should do to eliminate debt.

• What amount of debt is this the best strategy for. Borrowers who feel overwhelmed by debt and have tried other strategies and failed.

• Pros. Low or no cost to get this service, serves as a partner for your debt, interest rate can be reduced via a debt management plan, no new loan required.

• Cons. You have to temporarily close your credit card accounts, you must make consistent payments otherwise you’ll lose negotiated interest rate deductions.

Debt Settlement

• How it works. You negotiate a settlement with your debtors for less than the amount you owed. Typically the debt is reduced by 40% to 60%. You can negotiate the debt settlement yourself or hire an agency.

• What amount of debt is this the best strategy for. It’s best for those borrowers with $10,000 or more in unsecured debt. It’s typically for those who don’t want to file bankruptcy.

• Pros. Can eliminate a significant portion of the amount, avoids bankruptcy, provides resolution to your debt.

• Cons. Debts must go into delinquent status, for-profit settlement companies charge a 15 to 20% fee, you’ll have severe credit damage on your credit.

Bankruptcy

• How it works. Bankruptcy is a tool that allows borrowers to discharge their debt under Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, your debt is discharged within three to six months. In a Chapter 13 plan, you establish a repayment structure and try to repay your creditors. The plan typically lasts three to five years.

• What amount of debt is this the best strategy for. It’s best for those who have unsecured debts of $20,000. Chapter 7 is best for low-income earners, and Chapter 13 is best for higher-income earners.

• Pros. All collection activity is stopped, Chapter 7 can eliminate debt within three to six months, this provides court-supervised direction on your debt.

• Cons. Hard to get future credit since the bankruptcy can remain on your credit report for several years, not all debt is dischargeable, can impact future job positions.

What To Watch Out For

Before settling for a specific option for your credit card debt, here are some red flags to watch out for:

1. A request for upfront fees. If you’re asked to pay upfront fees before the debt is settled, that’s against the law.

2. Guarantee of a specific outcome. No debt settlement company can guarantee an outcome.

3. Pressure to stop paying creditors immediately. If the debt settlement company asks you to stop paying your creditors, that’s a red flag.

4. The agency has no credentials. Make sure the debt settlement company is licensed.

FAQ

If you’re paying high interest on your credit cards, will lenders negotiate with you?

If you’ve made consistent payments and are a long-time customer, the credit card company may lower your interest rate.

I have debt on several credit cards. What should I do?

Make a list of all your debts and get a financial overview. Start with a DIY strategy like the debt avalanche or debt snowball strategy. If that strategy doesn’t work, consider talking to a nonprofit counselor at a credit counseling agency.

Will debt settlement hurt my credit?

Yes, debt settlement can potentially hurt your credit. Your credit report is marked as “settled for less than the amount owed.” As time passes and you rebuild your credit history, your credit score may improve.

A debt collector keeps calling. Should I pay the debt?

Before you pay the debt, you have the right to request that the debt is confirmed and verified. Also, check the statute of limitations in your state to make sure the debt is still valid.

Should I close my credit card once I pay off the amount?

The credit bureaus include credit length as a part of your credit score, so it’s better to keep the account open.

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Key Terms

• Debt snowball — A payoff strategy where you make minimum payments on all debts and put extra money toward the smallest balance first for motivation and quick wins.

• Debt avalanche — A payoff strategy where you put extra money toward the debt with the highest interest rate first to minimize total interest paid.

• Balance transfer — Moving an existing balance to a new card, often with a 0% introductory APR, to reduce interest costs during the promotional period. A transfer fee of 3% to 5% usually applies.

• Debt consolidation — Combining multiple debts into a single loan or payment, ideally at a lower interest rate, to simplify repayment.

• Debt management plan (DMP) — A structured repayment plan through a nonprofit credit counseling agency, where you make one monthly payment that the agency distributes to participating creditors, sometimes at lower rates.

• Debt settlement — An agreement in which a creditor accepts less than the full balance to consider a debt resolved. It can hurt credit and trigger taxes on forgiven amounts.

• Form 1099-C — The IRS form a creditor sends after canceling $600 or more of debt; the forgiven amount is generally treated as taxable income unless an exception applies.

• Chapter 7 vs. Chapter 13 bankruptcy — Chapter 7 discharges most eligible unsecured debts in three to six months; Chapter 13 restructures debt into a three- to five-year repayment plan.

Sources

• Federal Trade Commission — How To Get Out of Debt

• Consumer Financial Protection Bureau — Debt settlement/debt relief services

• IRS — Topic No. 431, Canceled Debt: Is It Taxable or Not?

• U.S. Courts — Chapter 7 Bankruptcy Basics

Summary generated by AI, verified by MoneyLion editors