Updated: Aug 18, 2020
The credit card industry is gigantic. It wouldn’t be so big if credit cards weren’t so popular. A bulk of their revenue comes from interest payments. Because of this, credit card companies obviously want you to keep a balance with them for as long as possible. Because as long as you owe them money, they can just keep on making a profit off of you.
Trick 1 – “Snowballing”
In an ideal world, you have the means to pay the debt off but aren’t quite sure of the best strategy. If you simply owe on one credit card and can afford to make way more than the minimum monthly payment, then do that. Just pay as much as you can without hurting yourself and get it paid off as soon as possible.
If you owe debt on multiple credit cards and have the income to pay them down, then pay the monthly minimums on all except the card with the highest interest rate. Pay as much as you can per month on that one. Once it’s paid off, take how much you were paying and apply that to the card with the next highest interest rate, in addition to the minimum monthly payment you were already making.
This process is called snowballing and for high-interest and revolving debt, it is one of the most ideal ways to get your head above water. Once the cards are paid off you likely will have become accustomed to making these payments. You can then apply the amount you were paying each month on the final card to other forms of debt such as student loans.
Trick 2 – Paying Off Credit Cards With Personal Loans
For those who can’t seem to keep up with their monthly credit card payments, then doing debt restructuring with a personal loan may be a good option for you. A personal loan requires no collateral and most banks will work with you if you’re getting this loan for debt consolidation or debt restructuring.
It’s a fairly simply process:
● Find out the current payoff amount for your credit card debt. This may be shown in your online banking, but you might also need to call them.
● Apply for a personal loan for this payoff amount from your local credit union, bank, or an online financial lending institution.
● Upon approval, some banks may wish to send the funds directly to your creditors, while some banks may just give you the money and let you pay them off.
The key is to actually pay them off, and then never use them unless it’s an emergency. You now only have this one monthly loan payment to make, the interest of which will undoubtedly be much lower than any of your credit cards.
Trick 3 – Paying Off Credit Cards With Other Types Of Loans
A personal loan is far from the only option when it comes to borrowing money to pay off credit card debt. There are many options available. Collateral will be required for the other types of loans, but that usually results in a lower interest rate and a higher approval rate for those who have less-than-stellar credit.
Here are some more options for paying off credit card debt with borrowed money:
● Home Equity Loan - By using the equity in your home you can pay off your credit card debt. This is usually the only option for those whose debt starts getting into the $25,000 - $50,000 range or more.
● Auto Title Loan - If your car is paid off, you can use the title of it as collateral for a loan. The loan amount will be restricted to a percentage of your car’s resale value.
● Cash-Secured Loan - If you’ve got the cash necessary to pay the debt off but for some crazy or top-secret reason don’t want to do so directly, some banks will let you tie the money up in a CD and take a loan out against it.
Trick 4 – Zero Balance Transfers
If you think you can pay off your credit card debt in a year or less without taking out a loan, then you may want to look into zero balance transfer options. Many credit card companies offer deals to win over new clients. They will typically say that if you transfer your credit card debt to their company, you won’t have to pay any interest for 12 months.
So if you owed $4,000 on a Visa credit card from a local bank or credit union, but Capital One had a 0% balance transfer option on their Visa card, you could sign up with Capital One, they would send the $4,000 to your local bank to pay off your card, and you now owe that $4,000 to them. The debt doesn’t disappear, it’s just moved.
The key to doing this is to only do so if you can get a 0% interest option. Pay it off before the 0% is up. Sometimes the new company may request you cancel your old card. If they don’t then be sure to not use it after the balance has been brought down to zero, this is how people end up getting in over their heads and drowning in debt.
How To Negotiate A Credit Card Debt Settlement
Credit card companies exist solely to turn a profit, that’s it. They’re not here to help you in any way, shape, or form. They’re here to profit as much as possible off of consumer spending and consumer debt. The bottom line: they simply want to get paid.
If you owe a crippling amount of credit card debt and either can’t make the monthly payments or simply see no end in sight, then a settlement may be the right option for you. This will also be a great opportunity for you to learn that most finance-related obligations can be negotiated.
Who Can Settle Credit Card Debt?
This is completely subjective and comes down to the credit card agency and sometimes even down to the specific employee handling your case.
Obviously if you’re making $250,000 per year and owe $137 per month they’re not going to make a deal with you. However, if you earn $13.50 per hour and rising interest rates and other fees have got your minimum monthly payments eating up your entire paycheck, then you may be in luck.
Again, these guys exist for the sole purpose of making money. If you’ve been a loyal customer for years and your interest rate payments have more than made them enough of a profit, and they feel in danger of losing you, then they will probably jump on the opportunity to help you.
Alternatively, if they feel you’re just about to disappear and never be heard from again as your accounts default and go into collections, they may want to help you just as well.
How Do You Settle Credit Card Debt?
Settling the debt can seem intimidating, but it doesn’t hurt you to weigh your options and then ask. Make sure you come to the phone call well prepared. Figure out exactly what you owe, what your monthly payments are, what your monthly income is, and a good explanation as to why you need to work on a debt settlement agreement.
There are various options available that change from company to company. Here are some of the more common credit card debt settlement agreement options:
● Lump-Sum Payment - With this option you negotiate on a one-time payment that is less than the principal amount you currently owe.
● Workaround Agreement - These agreements let you work out a lower monthly payment or negotiate lower interest rates. It’s not unheard of to have them go back and retroactively remove or refund any past late fees and apply that to your balance.
● Hardship Plan - If you have had a recent life-changing event such as losing your job, or the death of a spouse, then most companies will offer you a hardship plan where you guys work out a deal until you get back on your feet.
How Does A Settlement Affect You?
The most important aspect about reaching a debt settlement with your credit card companies is understanding the risks involved. Reaching a settlement can have certain impacts that might make things a bit tough for you.
For example, if you settle on one of the Workaround Agreements with your company, they will likely cut your limit or render your card useless. This means you will not be able to use it, even for emergencies. Additionally, your credit will take a hit as it will throw off your available credit:current debt ratio.
A lump-sum settlement may affect your credit score even more than a Workaround Agreement. Oftentimes when the lump-sum payments are made, because the final amount was less than what you owed, the credit card companies will report it to the bureaus as “settled” or “charged off”.
Paying Off Credit Card Debt is intimidating as there’s a lot of money involved, oftentimes it eats away at your income drastically. Additionally, your future can be affected if you try to negotiate the debt. The important thing is to educate yourself, know your options, and create a plan that you stick to. There is always light at the end of the tunnel!
If you find this article is helpful and you want to help others too, just share it in any social media (such as Facebook, LinkedIn).