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Whether you owe a lot or a little, paying off your credit card debt is always a good idea. Before and after you make a major purchase, whether you use it to pay bills and groceries, or even if you just use it for points. Make sure the board is clean as often as possible. And if you can’t do that, you can consider using your credit less, if you can.
Approximately 60% of Americans live paycheck to paycheck, according to a report by Pymnts.com. And as inflation continues, credit card customers continue to struggle to make their payments. minimum paymentsresulting in damaged credit scores and increased interest that consumers will have to pay.
The average credit card balance for Americans is $5,910according to CNET sister site Bankrate. And there is growing concern that many credit card accounts will become delinquent as borrowers fall behind on payments.
If you’re having trouble making credit card payments, we have some options that can help you stay on your feet while you try to pay your bills. For more, here are the The best credit cards to pay debts..
1. Call your credit card company and explain your situation.
As soon as you know you won’t be able to make your minimum payment, contact your credit card company so they are aware of your situation. If the company doesn’t know, it could assume the worst and take action. Informing your credit card provider can help you avoid negative consequences and maintain control.
Your credit card company may be able to set up a payment plan that you can afford. The lender may also change your payment due date to better work with your paycheck. It might also be possible to negotiate a lower APR – the annual interest you pay on your credit card balance.
Whatever you resolve, get the details in writing. Bruce McClary, senior vice president of communications at the National Foundation for Credit Counselingtold CNET that you should make sure you receive official confirmation and terms of any changes to your account from your credit card issuer in case things don’t go as you thought.
The credit card issuer may also have relief or hardship programs (see below) that hurt your credit score less than going into default (an overdue account) or having your account loadedmeaning it is written off as a loss and closed to future charges. When that happens, your credit utilization ratio increases, which can lower your credit score. It can also decrease your credit history, which affects your credit score.
Contact your lender as soon as possible if you are unable to make a payment.
2. Try credit counseling or a debt management program.
Another option for help with credit card debt is to look for nonprofit credit counseling agencies or debt management programs that can help with budgeting.
“A debt management program allows you to get back on track affordably within your budget, while also benefiting from reduced payments and interest rates until you pay off your bills,” McClary explained. These programs can help you find a long-term solution with your creditors based on your budget, making payments more sustainable. they can too negotiate with creditors on your behalf to create a new payment plan.
Rod Griffin, senior director of consumer education at Experian, suggests contacting the attorney general’s office or the Consumer Financial Protection Bureauin addition to checking Consumer.gov for all your local options.
3. Rework your budget and find places to save or earn more
If you have budget problems that make it difficult to pay your bills, consider cutting unnecessary monthly expenses and applying for government assistance. There are programs that can give you a subsidy to pay your energy bills; for example, the Energy Assistance Program for Low Income Homes. States also offer rental assistanceas well as Temporary Assistance for Needy Familieswhich helps with food, housing, home energy, childcare and job training.
Next, consider canceling streaming services or cable, reducing purchases and returning unnecessary recent purchases. Try to eat at home more often and reduce visits to specialty restaurants and cafes. If possible, work from home to save money on gasoline. You could also use a “pay as you go” system. car insurance option if you don’t drive frequently. These small changes may not be enough to cover your bills, depending on how much you owe, but the money you save can still add up in the long run.
Once you’ve identified your savings opportunities, start looking for additional ways to earn more money. Check your storage closet for unwanted items and used electronics and put them up for sale on apps like eBay, Mercari, and Poshmark. you could start a side business or sign up to be an Uber or Lyft driver. You can also rent your car at Teaching when you are not using it.
4. Transfer your balances to a 0% introductory APR credit card
If your credit score is still good enough (for example, you haven’t missed any payments yet), consider applying for a 0% introductory APR credit card and transferring your balances. Typically, you’ll need a credit score of at least 670 to take advantage of one of these cards, but switching your credit card debt to a 0% introductory APR card can save you time and money when trying to pay off credit card debt. credit card.
However, if you are already struggling financially and can’t make your current minimum payment, this may not be the best option for you, as you will still be expected to make payments on your new card, even during the introductory period. If you don’t, your 0% APR period could end early.
If you can’t get approved for a 0% introductory APR and have multiple credit card balances, consider applying for one debt consolidation loan. Your debt will still charge interest, but you’ll only have to make one payment and you could get a lower rate overall.
A credit counselor can help find a solution to make payments more sustainable.
Disadvantages of Credit Card Hardship Programs
Although you won’t see them advertised much, many creditors offer hardship programs to help you pay off your credit card debt. Terms vary by lender, but may include options such as skipping payments or lowering your minimum payment or APR. Generally, you must apply for the program by contacting your creditor, but there may be certain stipulations. For example, you may need to provide evidence that you are experiencing difficulties.
However, the programs have some drawbacks that could damage your credit score. This is what they are.
1. Settle your debt for less than originally agreed
If you settle your debt for less than what was originally agreed upon (for example, if your original debt was $15,000 but you settled for $10,000), you could damage your credit score because you didn’t meet your original obligation. On the other hand, McClary adds that while you focus on paying off your credit cards, you should prioritize paying off your debt over your credit score: Paying off your debt will have a much greater long-term effect than obsessing over isolated credit components. .
2. Issuers could reduce your credit limit or close your account
The credit card company could reduce your credit limit or even close your account while you make payments, which will affect your credit score. A lower credit limit would affect your credit utilization ratio (the sum of your balances compared to your credit limits), an important part of credit scores, as your total credit utilization will increase.
If your account is closed later, your average credit age (the length of all your accounts divided by the total number of accounts), another component of your credit score, will decrease. Your credit utilization ratio and the length of your credit history are two important factors in your credit score.
3. Enroll in a hardship program, generally
Simply signing up for a hardship plan could indirectly affect your credit score, WalletHub analyst Jill Gonzalez told CNET. “Your credit card issuer may include a note on your credit report that could alert other potential creditors to your financial problems.”
Because of the potential negative consequences of hardship programs, Griffin says it may be best to work on a good relief program with a financial advisor.
For more information, here it is how to get out of credit card debt. Also, here it is what to know about debt consolidation and how it hurts and helps your credit.
If you want to build your bad credit but need the tools, check out our recommendations for best credit cards for bad credit and The best credit cards to get fair and average credit.. Use these cards together with best practices to increase your credit It will help protect your financial situation.
