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The Right Way to Pay Off Bad Credit Card Debt

The Right Way to Pay Off Bad Credit Card Debt

*Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Dec 05, 2018. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

If you are one of the millions of Americans struggling with credit card debt, it can be an anxious time. It can leave you feeling overwhelmed with no idea on where to begin to pay it down.

Credit card debt has topped the $1 trillion mark in America, according to the Federal Reserve, while the American Bankers Association reports that nearly 6 in 10 active card accounts (59%) carried a balance at some point in the second quarter of 2018.

If your card debt has spiraled out of control, take a deep breath and know that there are concrete steps you can take to whittle it down. But be warned —  ridding yourself of that debt won’t be quick, and it will take patience and dedication.  However, know that once you’ve regained the upper hand on your card debt, you’ll certainly have cause for celebration!

We’ll show you how to get started and outline options — working with credit card companies, finding a credit counselor, weighing a balance transfer credit card, taking out a personal loan or filing for bankruptcy — for tackling your credit card debt. When we’re done, you’ll be on your way to building up your credit score, getting your finances in order and eventually ridding yourself of your credit card debt.

The big picture

The first step is a tough one — facing the reality of your credit card debt. This is where you take a hard look at all of your credit statements to see what your balances are. Once you have a clear understanding of how much you owe, you’ll be better prepared to pay it all off.

Once you know what you owe, it may be helpful to create a spreadsheet that lists creditors, balances owed, interest rates, minimum monthly payments and percent of the total owed (for example, if you owe $9,000 on a $10,000 credit limit, you’re using 90% of your credit limit, which is also called your credit utilization ratio). Seeing the numbers written down can be scary, but it’s also the start of responsibly handling your debt.

The next step is creating a monthly budget to see how much money you can put towards paying down your debts. To create a budget, start by writing down how much money you’re earning every month. Then add up your monthly expenses like rent or mortgage, groceries, transportation, credit cards, loans, insurance, gas, utilities and miscellaneous items. Subtract your expenses from your earnings to see what’s left over to allocate to card debt payments over the minimum amount due.

If there are funds left over, then you can create a debt repayment plan. If not, then it’s time to knuckle down and figure out what your next steps are.

Call the credit card companies

After gathering information on all your credit card debt and creating a budget, it’s only natural to wonder which debts should take priority over the others. The tendency is to try to keep the accounts from going delinquent and to keep making at least the minimum payments each month, but when you’re in over your head, this payment strategy won’t do much to knock down high balances.

Check out our story Making Minimum Credit Cards Payments: Explained.

The first thing to do is to call each credit card company and let them know your current financial status. The big secret is that most credit card companies are open to working with you if you’ve been a good-standing customer. When you call, ask your customer service agent two questions: Is there a settlement amount they’d be willing to make? And is there a way to lower your interest rate?

Sometimes, card issuers will offer a settlement amount that could clear your debt for a fraction of the current balance. This doesn’t often happen until you’ve missed several payments and the issuer sees a risk of not being repaid at all, but you won’t know if you don’t ask. But be warned: if you settle a large debt and have part of it forgiven by your credit card company, the amount forgiven will be considered taxable income, and you will receive a 1099-C form asking you to include that amount as income on your next tax return.

If the card issuer doesn’t agree to a settlement, you may have better luck at getting your card’s APR lowered, which will reduce the amount of interest you pay monthly. It also allows more of your monthly payment to go toward reducing your credit card balance. No surprise — this is the option most credit card companies are willing to do to help you cut your debts, but not indefinitely. An issuer may only offer to cut your APR for a limited period of time.

Prioritize your payments

Now that you’ve either reached a settlement amount or had your interest rate reduced, it’s time to come up with a plan to pay those credit cards. Go back to the spreadsheet you created and look at two things: total debt on each card and interest rates on each card.

There are several strategies you can use to attack those balances. One is using the avalanche method, where you allot the largest payment over the minimum amount due to the credit card with the highest interest rate while just making the minimum payments to the rest until the card with the highest APR is paid off. Then you would apply the same method to the next highest-interest card, and so on.

Another option is using the snowball method, where you make minimum payments on all debts except for the smallest one, where you pay as much as you can over the minimum, so it can be closed quickly and you achieve a quicker victory. You then apply this method to the next-smallest debt until all of your cards all paid off.

Other solutions

Debt counseling

Sometimes we’re so far over our heads that we need professional help. If you don’t have enough cash to adhere to either the snowball or avalanche method, you may want to consider working with a nonprofit debt counseling organization. These groups are especially helpful if you have a low credit score, you’re being constantly dinged with expensive late fees or you haven’t had any luck negotiating directly with credit card companies.

Reputable organizations offer free advice on how to manage your money and debts, help with budgeting, free learning materials and access to educational workshops. Their counselors are certified and trained to assess your financial situation and work with you to create a personalized plan to fix it.

That could include enrollment in a debt management plan. Under one, your credit counselor negotiates with your card companies to slash interest rates and consolidate everything into one monthly payment. A typical program charges fees between $25 and $35 a month as long as you’re enrolled in a program.

With clients remaining in these programs for at least four years, debt management fees could cost between $1,200 and $1,680, depending on how long these clients remain in the program, but if you consider the amount of interest that could accumulate over that same period of time on unpaid debts, it may well be worth it.

The National Foundation for Credit Counseling is a nonprofit that oversees nearly 600 member offices in the U.S. and Puerto Rico for those who need help with their finances. Click here to use its locator service to find a counselor. The U.S. Justice Department also oversees a database of approved credit counseling agencies by state and judicial district here.

Balance transfer credit card

Depending on your credit score, you may qualify for a balance transfer credit card. With this option, you can transfer your higher-interest card balance(s) to one with a longer pay-off term and balance transfer intro rate of 0% APR. Some of the more popular cards are:

  • 0% for 12 months on Purchases

  • 0% for 21 months on Balance Transfers

  • 16.24% - 26.24% (Variable)

  • No Late Fees, No Penalty Rate, and No Annual Fee... Ever
  • 0% Intro APR on balance transfers for 21 months from date of first transfer. All transfers must be completed in first 4 months. After that, the variable APR will be 16.24% - 26.24%, based on your creditworthiness.
  • 0% Intro APR on purchases for 12 months from date of account opening. After that, the variable APR will be 16.24% - 26.24%, based on your creditworthiness.
  • If you transfer a balance with this offer, after your 0% Intro purchase APR expires, both new purchases and unpaid purchase balances will automatically accrue interest until all balances, including your transferred balances, are paid in full
  • The standard variable APR for Citi Flex Plan is 16.24% - 26.24%, based on your creditworthiness. Citi Flex Plan offers are made available at Citi's discretion.
  • Stay protected with Citi® Quick Lock and $0 liability on unauthorized charges

See additional details for Citi Simplicity® Card - No Late Fees Ever

More Info

Citi Simplicity® Card - No Late Fees Ever, with an intro balance transfer APR of 0% for 21 months on Balance Transfers, then 16.24% - 26.24% (Variable) APR, and a fee of 5% of each balance transfer; $5 minimum

  • 0% for 18 months on balance transfers & 0% for 6 months on purchases*

  • Earn 5% cash back at different places each quarter up to the quarterly maximum, when you activate*

  • 13.49% - 24.49% Variable*

  • INTRO OFFER: Discover will match ALL the cash back you've earned at the end of your first year, automatically. There's no signing up. And no limit to how much is matched.
  • Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate. Plus, earn unlimited 1% cash back on all other purchases - automatically.
  • Redeem cash back any amount, any time. Rewards never expire.
  • 100% U.S. based customer service.
  • Get your free Credit Scorecard with your FICO® Credit Score, number of recent inquiries and more.
  • Get an alert if we find your Social Security number on any of thousands of Dark Web sites.* Activate for free.
  • No annual fee.
  • See Rates & Fees

See additional details for Discover it® Balance Transfer

More Info

Discover it® Balance Transfer, with an intro balance transfer APR of 0% for 18 months, then 13.49% - 24.49% Variable APR, and a 3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*.

The Amex EveryDay® Credit Card from American Express, with an intro balance transfer APR of 0% for 15 Months, then 14.99% - 25.99% Variable APR, and a $0 balance transfer fee..

The information related to The Amex EveryDay® Credit Card from American Express, has been collected by CompareCards and has not been reviewed or provided by the issuer of this card prior to publication.

If you choose this route, it’s best to have a plan to pay them off before the 0% promotional APR ends. If not, you’ll be back in the same boat of paying higher interest rates on your balances.

Check out our round-up of the Best Balance Transfer Credit Cards.

Personal loan

Applying for a personal loan or debt consolidation loan, which may have a lower interest rate than what you’re paying on your card debt, can allow you to transfer card debts into one loan at a fixed rate for a specified period of time. Having one payment instead of several can simplify your bookkeeping, and you know exactly when your loan will be paid off, which can alleviate a lot of stress.

The loan process is simple, especially since most companies have online forms that take minutes to fill out. It’s also easier to comparison shop for the best loan terms.

Most loans run between 12 and 60 months at rates between 3% and more than 30%, depending on your creditworthiness. Some come with an origination fee of 1% to 8% that is automatically rolled into your loan and is nonrefundable.

While you don’t need a great credit score to qualify for a personal loan, having a lower score may cost you more to get one. Those with scores below 600 will end up paying APRs of between 6.95% and 36%, depending on the lender. However, a benefit is that having a personal loan can help boost your credit score as long as you make your minimum payments on time.

Be prepared to submit documentation for your loan beyond what credit card companies require, including personal contact information, citizenship status, gross monthly income from all sources, monthly mortgage or rent payment, recent pay stubs or tax returns, utility bills to verify your address and a copy of your driver’s license or Social Security card.

Most importantly, once your card balances are rolled into the personal loan, do NOT add to your debt by starting to use your cards again, which will defeat your efforts to be debt-free.

Check out this tool, powered by CompareCards.com parent company LendingTree, to research personal loan options.


If you’ve exhausted all the options above and still find you can’t pay off your credit card debt, then filing for bankruptcy may be your best bet. Before you make this decision, it’s best to verify that this is the right choice by visiting with a nonprofit credit counselor, who will help you determine whether this is best path for you. Bankruptcy is a long, arduous process that will tank your credit score, but it will provide relief if you absolutely can’t dig your way out of debt.

Congress enacted the Bankruptcy Code in 1978 as the uniform federal law that governs six types of bankruptcies, including Chapters 7 and 13. Below is a chart that explains the differences between the two. Fees are accurate as of the date of publishing.

The Differences Between Chapter 7 vs. 13

Chapter 7

Chapter 13

How long does it take to complete?

Four to six months Three to five years

How much will it cost?

  • $335 to cover filing and administrative fees and the trustee surcharge
  • $1,072 for attorney fees, on average.
  • $310 to cover filing and administrative fees
  • $2,564 for attorney fees, on average.

What debts are discharged?

  • Collection agency accounts
  • Personal and business loans
  • Medical bills
  • Cash advance debts
  • Apartment rent
  • Repossession balances
  • Auto accident claims (unless caused by drunk driving)
  • Civil court judgments
  • Tax penalties and unpaid taxes
  • Social Security overpayments
  • Veterans assistance loans
  • Past-due utility bills
  • Credit cards
  • Collection agency accounts
  • Personal and business loans
  • Medical bills
  • Cash advance debts
  • Apartment rent
  • Willful and malicious property damage
  • Debts from divorce or separation settlements
  • Homeowners’ dues if you surrender your home
  • Past-due utility bills
  • Auto accident claims (unless caused by drunk driving)
  • Civil court judgments that aren’t due to fraud
  • Debts from a prior bankruptcy if your discharge was denied
  • Loans against a retirement account
  • Homeowners association or condominium fees


Earn less than the state median income on a monthly basis and submit to a means test that examines their financial records, including income and expenses, along with secured and unsecured debt Have unsecured debts are less than $394,725 and secured debts that are less than $1,184,200. Individuals can’t file if a prior bankruptcy case was dismissed and they are required to receive credit counseling from an approved agency.

Credit Impact

  • Negative bankruptcy information remains on your credit report for up to 10 years after filing
  • Individuals who fall back into debt can’t file again for eight years
  • Bankruptcy comes off your credit report after seven years
  • Individuals can file again in as little as two years.

Status of your assets

  • Determined by the state where you reside
  • A federal court trustee sells assets that aren’t exempt (cars, work-related tools and basic household furnishings may be exempt) and uses them to pay creditors
  • Individuals can keep their property in exchange for partially or completely repaying debt.
  • The bankruptcy court and your attorney will negotiate a three- to five-year repayment plan.
  • Once you’ve completed the agreed repayment plan, your debt is discharged, even if you only repaid part of the amount you originally owed.

Debts that can’t be forgiven under bankruptcy

  • Most student loan debt
  • Court-ordered alimony and child support
  • Reaffirmed debt
  • A federal tax lien for taxes owed to the U.S. government
  • Government fines or penalties
  • Court fines and penalties

Check out MagnifyMoney.com’s The Ultimate Guide to Bankruptcy – Chapter 7 & 13.

Final thoughts

The main lesson here is you can’t ignore your credit card debt. Now is the time to take a good hard look, add up the numbers and work on a plan to pay it off. We’ve outlined all of your options so you can decide which one will work best.

But no matter which option you take, the key is to create a solid plan and stick with it.  Understand that paying off credit card debt is a long process, but that with hard work and dedication, being debt free is an achievable goal.

Note: CompareCards.com and MagnifyMoney.com are both owned by LendingTree.

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