How to Get Out of Credit Card Debt

Which solution you use depends on how deep you are in debt.

Credit card debt problems tend to be a slippery slope. At the beginning, you have a few tight months and then your balances start to climb. Then every month seems to be a struggle to make ends meet. Then you’re not making ends meet at all. If you’re dodging calls from collectors, you’ve hit rock bottom.

But the good news is that no matter where you are on that slippery slope, there are solutions you can use to get back to financial stability.

Step 1: Assess where you are with debt

In order to identify the best way to get out of debt, you need to know exactly where you stand. So, the first step is to go through your debts to identify the following:

  1. The status of each debt (current, behind, collections)
  2. Your current APR on each debt
  3. The current balance on each debt

This worksheet can help you total up all your credit card debt »

Step 2: Evaluate your credit

It also helps to know where your credit scores stand. A credit monitoring tool can come in handy because do-it-yourself solutions require you to have good credit. So, if you have a bad credit score then you can skip straight to Solutions 3 and 4.

VantageScore 3.0 RangeCredit Score Designation
781-850Super prime
601-660Near Prime
300-499Deep subprime

Now you know what you need to know to choose a solution:

There are four good ways to get out of credit card debt. Two of them are do-it-yourself, but they have some limitations. The last two are professionally assisted and often yield better results because you have a professional team that’s there to help you along.

Solution 1: If you owe less than $5,000 and have excellent credit…

In this situation, a balance transfer is often the best solution. Balance transfer credit cards offer 0% APR on balances that you transfer from other accounts. That 0% rate is usually an introductory rate, meaning it expires after 6-18 months. But that gives you time to pay off your debt interest-free.

However, you need excellent credit to qualify for longer introductory periods. If you only qualify for a 6-month 0% APR, then you’ll need to pay more than $800 to eliminate a $5,000 balance in 6 months. If you have 18 months to pay interest-free, then you can get out of debt with monthly payments of around $275.

  • Debt range: Up to $5,000
  • Credit score requirement: Good-excellent
  • Interest rate: 0% introductory rate
  • Time to payoff: 6-18 months
  • Fees: From $3-5 per transfer to 3-5% of each balance transferred
  • Warnings: Must stop making charges on other credit cards while repaying debt

Solution 2: If you owe less than $20,000 and have good credit…

This usually makes you a good candidate for a debt consolidation loan. You take out an unsecured personal loan in an amount large enough to pay off your credit cards. This leaves only the low interest rate loan to pay off.

Again, you need at least a good credit score to qualify for the lowest interest rate possible. You also need to balance your budget, so you can stop charging on your credit cards. Otherwise, you can end up with more debt instead of less. Ideally, you should only start using credit cards again when you’ve paid off the loan.

  • Debt range: Up to $20,000
  • Credit score requirement: Good-excellent
  • Interest rate: 8-12%
  • Time to payoff: Usually 24-48 months
  • Fees: Loan origination fee, 1-6% of amount borrowed
  • Warnings: Must stop making charges on credit cards during repayment

Solution 3: If you owe more than $20,000 OR don’t have good credit…

In both cases, it means that you’ll need help to get out of debt. You need to contact a consumer credit counselor to see if you qualify for a debt management program. A debt management program (DMP) allows you to consolidate debt, even if you have bad credit. You can consolidate up to $100,000 (or more with some credit counseling agencies).

When you enroll in a debt management program, you still owe your original creditors. The credit counselor simply helps you set up a repayment plan you can afford. Then they negotiate with your creditors to reduce or eliminate interest charges and stop penalties. Any cards you include are frozen when you enroll, but the credit counseling team helps you set up a budget. It’s also a good way to break any credit dependence you’ve developed.

  • Debt range: $10,000-$100,000 (some agencies may take more)
  • Credit score requirement: None
  • Interest rate: 0-11%, on average
  • Time to payoff: 36-60 months
  • Fees: Vary by state, capped at $79 nationwide, average is $40
  • Warnings: All credit cards included in the program are frozen and you can’t open new cards while enrolled

Solution 4: If most of your debts are already in collections…

One of the main goals of a DMP is to reduce or eliminate interest charges. But by law, debt collectors shouldn’t be able to apply interest charges to a credit card debt that’s already in collections. So, if most of your debts are already charged off and they’ve been sold to collectors, you won’t benefit from a debt management program.

Instead, your best option is to settle. You can try to negotiate with individual collectors on your own. However, results can vary. Often, your best option is to enter a debt settlement program to allow professional debt negotiators to do the work for you on all your debts.

You pay into an account set aside to generate funds, so the negotiators can make settlement offers on your behalf. You only pay fees on debts that are settled. On average, you usually end up paying about 48% of what you owed, to get out of debt.

  • Debt range: $10,000-$100,000
  • Credit score requirement: None
  • Interest rate: Do not apply
  • Time to payoff: 12-48 months
  • Fees: Percentage of amount settled, average $500-$5,000
  • Warnings: Each debt settled creates a negative remark on your credit report that sticks around for 7 years from the date of discharge; this affects your score.

Bad ideas for getting out of debt

  • Borrowing against your home to pay off credit card debt. Using things like home equity loans, HELOCs and even cash-out refinancing reduces the value of your asset and puts you at increased risk of foreclosure.
  • Taking money out of your retirement accounts. Retirement accounts apply penalties for withdrawals before age 59½ and you may pay income taxes on the money you withdraw
  • Borrowing against your life insurance policy. The point of life insurance is to protect your family if the worst happens. If you borrow against that policy, you could leave them with debt instead of a safety net.

Smart credit tip once you get out of credit card debt

Regardless of what solution you use, make sure to repair your credit once you’re out of debt. You want to make sure all your account statuses and balances are up to date. All collection accounts need to be verifiable. If they aren’t, credit repair can ensure they get removed.

Then you’ll need to take steps to rebuild your credit if you need to offset any damage from things like missed payments. Using a credit monitoring service can help you track changes in your score and take actions to improve it.

And you make sure to take note of when negative items should be removed from your report. If they don’t drop off when they should, you may need credit repair down the road, too! This is how you get back to a good credit profile as quickly as possible after facing challenges with credit card debt.