Are you stuck in credit card debt? It’s an issue faced by several North Americans that are having a hard time adjusting to increased costs of living and credit complications. The first thing you need to do is identify the scope of your debt and what kind of help you’ll need to solve this issue. If you take the wrong advice and follow incorrect debt settlement steps, you might end up deeper in the hole than you were before. So, what should you do to get out of credit card debt without hurting your credit?
In this article, we will be discussing the answer to this question and sharing valuable tips that you can follow. However, the easiest way to consolidate credit card debt depends on the individual and their financial condition. Additionally, you may also contact Alpine Credits, who can advise you on debt payment methods.
What is The Most Efficient Way to Pay Off Credit Card Debt?
The easiest way to get rid of debt is by paying it off in small installments right from the beginning. You can then slowly increase your repayment amount until the loan is completely paid off.
Another option would be to transfer the existing loan to a single credit card, or you may also apply for a consolidation loan. However, transferring the balance to one credit card or getting a consolidation loan might be risky. This is because if you need additional money at any time, you might get tempted to use one of these zero-balance accounts.
This can lead to a “relapse,” where you once again build up a credit debt that adds to your overall amounts, meaning you might face even more significant credit problems.
Steps to Follow to Avoid Falling Into Debt
Here are some habits you can follow while managing your credit card debt:
- Try keeping the balances low in your loan account to avoid any type of additional interest.
- Avoid transferring the debt – instead, try to pay off the existing amounts slowly.
- Do NOT opt for new credit cards from different financial institutions to increase your overall credit limit. This is not a long-term solution and carries a high risk of accumulating more debt.
- Don’t miss payments, and ensure that you’re paying your bills on time.
- Monitor and control your credit card usage. This helps preserve your credit history and also helps you prevent additional debt from building up due to reckless spending.
Methods to Get Out of Credit Card Debt Without Damaging Your Credit Score
There is no single solution to this problem. However, here are some potential solutions that you can look into when looking to get out of credit card debt with your credit score intact.
- Personal loan to cover the debt
You can apply for a personal loan which can be a potential solution when trying for credit settlement. With the help of this loan, you can make a single payment on your entire loan instead of making various credit card installments every month.
This alternative is only useful if you have a good credit score. You might even get a lower interest rate for your personal loan than the interest you are paying for your credit card.
- Ask family or friends for help.
If you feel that a family member or friend can handle the financial issue, do not shy away from asking for help. But you need to keep in mind that relationships and money are not the best combinations. So if you are going on this route, make sure that you repay the amount within the time limit you have mentioned. In this way, you can maintain a healthy relationship with the lender.
- A home equity loan
You can receive funding from a financial institution against your home’s equity in the form of a loan. Most lenders are willing to lend as much as 80-90% of your home’s equity. You can determine your home equity by calculating the home’s market value and deducting any charges or mortgages from it. The amount borrowers will receive can be used to get rid of their debts, and to make things even more convenient, home equity loans are offered at lower interest rates in most cases.
However, you need to be vigilant about repayments. The lender has the absolute right to start foreclosure on your home if you fail to meet your payment obligations, so it is recommended that you choose this alternative after confirming you have a steady income.
- Retirement account loans
This should ultimately be the last resort, but if no other solution works out for you, you can consider using your retirement funds.
Your retirement funds are your future security, and therefore it is advised that you use them with extreme caution. Retirement account loans usually do not require a credit check of the applicant as long you have a loan option.
- Debt management plan with a certified credit counseling company
The safest way to pay off your existing debt is to avoid taking any additional debt. So if you have a large amount of debt that must be repaid soon, it is high time that you contact a credit counseling agency.
While using this step, you simply consolidate your unpaid loans and not borrow any extra money. A credit counselor will be assigned to your case to negotiate with your creditors to reduce your interest rates and help resolve any extra charges like over-limit charges or late fees. They negotiate with your debtors to come up with a feasible repayment plan and help you manage your debt properly.
This is more popularly known as traditional debt consolidation, and it comes with its own caveats, like requiring an additional fee you’ll have to pay on top of your loan amounts, as well as the process took quite a long time if you don’t have enough income to make substantial repayments. In most cases, it is much better to consolidate your debt using home equity loans.
Even if you have diligently managed your money wisely, sometimes, financial hardships are unavoidable. Several factors such as accidents, job loss, divorce, or other life events can force even those individuals with good payment habits into debt situations. If you’re facing challenges with your debt, don’t worry; your best course of action is to contact your creditors to work out a repayment plan or try the steps listed above to work towards a better financial future.