Best debt relief options for credit card debt

Struggling with credit card debt can feel overwhelming. High interest rates and compounding balances make it difficult to pay down the principal and get out from under the debt.

If you’re dealing with credit card debt, there are options to lift this financial burden. There are several credit card debt relief options to help you get back on the road to financial freedom.

Key credit card debt statistics

Is credit card debt forgiveness an option?

Credit card debt forgiveness is highly unlikely, as few lenders offer this option. However, it is worth talking to your credit card issuers about what options might be available.

Contact your credit card companies to express your concerns about repaying your balance and ask what can be done to make the debt more manageable. Your creditors may be willing to temporarily lower your interest rate, work out a lower payment plan, or even write off a portion of the debt.

Beware of companies that claim to offer government-sponsored credit card debt forgiveness programs. Any claim of such a program is likely a scam.

Options for credit card debt relief

Even if your credit card company doesn’t offer options directly, you can look into other debt relief methods.

Debt consolidation

Debt consolidation is a form of credit debt relief that combines multiple debts into a single monthly payment. This can be done through debt consolidation loans, balance transfer credit cards or enrollment in a debt management program.

Credit card debt consolidation streamlines the repayment process by combining some (or all) of your debts into one monthly payment. The aim is to secure a better interest rate and simplify your obligations. The process will generally involve taking out a new personal loan with a lower interest rate. This may temporarily bring your credit score down a bit, but it can help you pay off your debt faster and save money on interest expenses.

With balance transfer credit cards, you transfer your existing balances from high-interest cards to one new card with more favorable terms. You might be able to receive an introductory 15- to 25-month zero-interest period. You can pay off your credit card debt without any interest during this time. The better your credit score, the longer the 0 percent APR period may be.

Pros of debt consolidation

• Lower interest rates or reduced fees
• Possibility of paying off your credit card debt faster
• Simplified management, with one monthly payment
• Potential credit score improvement with on-time payments

Cons of debt consolidation

• Approval issues, especially if you don’t have a good credit score
• Commitment to a long-term repayment plan
• Added costs from loan fees
• Potential credit score damage when you first open a consolidation loan

Debt settlement

Debt settlement is negotiating with creditors to reduce the total debt owed by offering a lump sum payment of a large portion of the debt.

Debt settlement is generally a last resort option because it is usually only an option after your account defaults. Companies aren’t likely to want to settle unless they think they won’t get paid otherwise. While you aren’t making payments, you will likely be charged fees, and your credit score will drop.

There is also no guarantee the credit card company will accept your debt settlement proposal, which means risking damage to your credit score without any benefit. You might also have a penalty interest rate.

You can negotiate with your credit card company or find a reputable nonprofit credit counseling agency to guide you or negotiate on your behalf.  Some for-profit companies also offer debt settlement programs.

To avoid debt relief scams, research any company before signing up.

Pros of debt settlement

• Potentially a reduction in total debt owed
• Single point of contact for debt resolution
• Possible faster repayment period

Cons of debt settlement

• Typically requires a large lump-sum payment
• Negative impact on credit score
• Fees associated with the debt settlement process, even if it is unsuccessful
• No guarantee that the lender will accept the settlement proposal
• Canceled debt is usually considered income by the IRS, so there may be tax consequences

Bankruptcy

Bankruptcy is a legal process that provides relief from overwhelming debt by liquidating assets or creating a repayment plan. Chapter 7 bankruptcy is used for unsecured loans (such as credit card debt), while Chapter 13 bankruptcy may be best if you have certain assets you want to keep.

Although bankruptcy is often seen as a measure of last resort, it may be a viable option for those with insurmountable debt. The process involves court proceedings and procedural hurdles, but roughly 96 percent of Chapter 7 bankruptcy cases successfully discharge debts.

The main upside of declaring bankruptcy is that you walk away with a court order that discharges you of the obligation to pay certain debts. While bankruptcy might provide relief and a fresh start, certain debts may be excluded, such as student loans, alimony and older tax debt. Bankruptcy will also have a major impact on your credit score for seven to 10 years.

Note that, unlike other debt relief methods, the creditor cannot sue you for nonpayment with bankruptcy.

Pros of bankruptcy

• Potential discharge of certain debts
• Protection from creditor lawsuits during bankruptcy proceedings
• Certain property is exempt, meaning it can’t be sold to settle your debts
• Opportunity to start rebuilding credit immediately

Cons of bankruptcy

• Potential forced sale of assets to repay debts
• Certain debts won’t be discharged
• Significant impact on credit score

Alternative ways to get out of credit card debt

Aside from traditional debt relief options, there are alternative strategies to consider when trying to regain control of your credit card debt.

Financial counseling

Guidance from financial and credit counselors can provide valuable insights into budgeting, spending habits and debt-management strategies. This can help you get out of debt while giving you tools to stay out of debt.

Strategic debt repayment

Using strategic debt repayment methods, such as the debt snowball or debt avalanche, can help you prioritize and steadily pay down your credit card debt. Both the snowball and avalanche methods require you to pay more than the minimum balance on one of your debts until that balance is paid in full. You then “roll” the amount you would have put toward that debt into paying off the next priority debt faster.

The debt snowball method emphasizes paying off the smallest debts first, while the debt avalanche method prioritizes paying off the debts with the highest interest rates first.

Mistakes to avoid with debt relief

Certain pitfalls may increase your financial challenges when looking for credit card debt relief. Avoid the following while looking for any debt relief plan:

• Debt relief scams: Some criminals target those seeking help with credit card debt. Make sure that you know how to identify a debt relief scam, such as guarantees that you will qualify for debt relief or that your credit score will be improved.
• Hidden fees: Most credit card debt solutions will come with fees. Make sure you know what they are so you don’t get blindsided by hidden costs.
• Impulsive financial decisions: Try not to make hasty purchases, which can further jeopardize your financial stability. Getting out of debt is a long-term process, and it will take persistence to gain financial freedom.
• Debt collector harassment: Ignoring communication from creditors can lead to escalated collection efforts, additional fees and damage to your credit score. However, that doesn’t mean you should allow debt collectors to harass you. The Fair Debt Collection Practices Act outlines how debt collectors can and cannot contact you.
• Predatory lenders: Avoid engaging with loan sharks offering high-interest loans that can trap you in a cycle of debt.

The bottom line

Credit card debt may be intimidating, but it doesn’t have to ruin your financial future.

If you’re struggling with credit card debt, contact your credit card companies to see if they can adjust terms to make the debt more manageable. You might also benefit from financial counseling or creating a strategic debt repayment plan.

If you decide to pursue debt consolidation, settlement or bankruptcy, carefully review the pros and cons of each to make sure you’re making the right decision.