6 Options for Getting Rid of High-Interest Credit Card Debt
Credit card debt is particularly dangerous for a few reasons. Among them are numbered high average Annual Percentage Rates (APR), compounding interest and the ease of qualifying for lines of credit these days.
You know those credit cards advertising tempting cash-back rewards for cardholders? The overall average interest rate stands at nearly 21 percent. Travel rewards cards have an average interest rate just shy of 16 percent. Airline and hotel cards surpass 16 percent APR. And default rates, or those you’ll pay if you miss payments, are even higher — often between 27 and 30 percent.
Plus, there’s the fact that credit card interest compounds, or accumulates on both the balance and prior interest charges. These conditions allow interest to flourish and grow quickly, which is when credit card debt can really get out of hand.
Many Americans find themselves making payments that essentially go toward interest alone, doing little to nothing to actually bring down their balance. It’s a vicious cycle worth breaking as soon as possible.
Here are six options for getting rid of high-interest credit card debt.
If you’re going to try to pay down your credit accounts on your own, you’ll want a strategy — mostly likely either “snowball” or “avalanche.”
The snowball method means paying your balances one by one from smallest to largest. The avalanche method pays your balances one by one from highest interest rate to lowest. Both strategies require keeping up with minimum payments on all other accounts to avoid delinquency.
Struggling with a particularly high-APR credit card? One option is transferring the balance to a new card with a zero-percent APR introductory period.
This gives you a set amount of time in which to pay down the balance directly without compounding more interest. Be aware there is a small fee per balance transfer and that the introductory period will inevitably end.
And, when it does, you can sometimes be held liable for all of the interest that would have accumulated during the introductory period. Take this route only if you’re sure you can pay off the debt before the promotional period ends.
Debt Consolidation Loan
One option for those with solid credit is taking out a debt consolidation loan from a bank, credit union or online lender.
This makes it so you only have to worry about one payment per month and reduces how much you’ll be paying in interest. You should crunch the numbers before applying to make sure you’ll be coming out ahead when all factors are considered.
Debt Management Program
Speaking with a credit counselor at a reputable non-profit agency is free, which makes it a wonderful resource budgeting help and tackling debt. After reviewing your financial situation, a counselor may recommend you try debt management through their agency.
On a debt management plan (DMP) you’ll start making one monthly payment to the agency, which will then in turn makes payments to your creditors. They will also try to negotiate better terms, like reduced interest and waived fees, in exchange for you committing to a DMP as needed for three to five years.
Debt Settlement Program
If your credit score makes it difficult to pursue consolidation, or your credit card debt exceeds the recommended amount for a DMP, settlement is another option.
As many Freedom Debt Relief reviews demonstrate, many people pursue debt settlement after falling behind on credit card payments due to a hardship — like the loss of a job, a death in the family or a medical emergency.
Think of bankruptcy as the last stop on the debt relief train. Hopefully, another strategy will work for you first.
Always save bankruptcy for when there’s truly no other option. While this tactic can help provide a fresh start to those who need it, the price to pay will be years of damaged credit and the possible forfeiture of certain assets.
Getting rid of high-interest credit card debt isn’t easy, but it’s in your best interest. Learn more about these six strategies so you can find the best fit for your situation.