5 questions to ask if you're in serious credit card debt
Carrying a credit card balance from month to month can lead to big financial issues in nearly any economic environment, as the high interest rates tied to these cards can lead even the smallest debts to spiral out of control. But in today's high-rate environment, any credit card debt you've accrued — or are continuing to accrue — can be an even riskier proposition.
One issue is that the average credit card rate is currently 21.59%, so if your card rates are close to that average (or surpass it), any credit card balance that you're unable to pay off in full will grow due to hefty interest charges. And, those high credit card payments could be hard to keep up with in today's economic environment, as other pressures, like persistent inflation, are causing budgets to be stretched thin.
In turn, it's easy to find yourself in over your head with your credit card debt right now. But if you're feeling overwhelmed and are unsure of how to regain your financial footing, it can help to take a step back and assess your situation objectively. And, that starts by asking yourself a few key questions to develop a clear understanding of your credit card debt and how to tackle it.
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5 questions to ask if you're in serious credit card debt
If you are looking for ways to address an issue with serious credit card debt, start by asking yourself the following questions:
Can I work with my credit card companies on a solution?
Many credit card issuers are willing to work with customers who are struggling to make payments on their debts, so it may be worth discussing your situation with your credit card issuers to find potential solutions. Start by reaching out to your card issuers and inquire about whether it's possible to lower the interest rates and waive fees tied to your cards.
You may also want to inquire about any credit card hardship programs that are available to you. These programs are geared toward cardholders who are facing temporary financial hardships, like a job loss or medical issue, and need some temporary relief from their high card payments and they can result in temporarily lower payment amounts, lower interest rates or other concessions.
Should I consider debt consolidation?
You may also want to ask yourself whether debt consolidation makes sense. When you pursue debt consolidation, you combine multiple debts into a single loan, typically with a lower interest rate. This allows you to simplify your payments and potentially save a significant amount of money on interest charges.
There are a couple of options to weigh in terms of debt consolidation, too. One is a traditional debt consolidation loan, which is a loan borrowed from a bank, credit union or another financial institution, that is used to pay off multiple debts at once. The other is to take out a debt consolidation loan through a debt relief agency's lender partner.
Both options generally require you to have good credit, but obtaining a debt consolidation loan through a debt relief company could be easier if you have a few negative marks on your credit report. After all, these companies regularly work with people facing serious debt issues, so they may be more flexible in terms of lending requirements than a traditional financial institution would be.
Should I try to settle my credit card debt?
It can also make sense to ask yourself whether credit card debt settlement is the right path to pursue. With this option, the goal is to get your lenders to accept a lump-sum payment for less than the full balance, which can provide a lot of relief to those with overwhelming amounts of credit card debt. And, while there's no guarantee that a lump-sum payment will suffice as a settlement, many lenders will consider it if you're significantly behind on payments.
But while debt settlement could make sense, it's important to understand the potential repercussions before pursuing it. For starters, there may be a significant negative impact on your credit score between the late payments and the settled debts being reported as "settled for less than the full balance" on your credit report. There are also potential tax implications, as forgiven debt may be considered taxable income, and if you work with a debt relief company, there are typically fees tied to any successful debt negotiations.
Could bankruptcy be an option?
Bankruptcy should generally be considered a last resort, as it has significant long-term consequences on your finances (and your credit). But in some cases, especially those where the overwhelming debt is impossible to tackle on your own, it may be a necessary step to regain financial stability.
So, ask yourself if bankruptcy is the right option to pursue. If you determine that it is, or if you're unclear as to the answer, you may want to consult with a bankruptcy attorney before filing any paperwork. That way, you can ensure that you fully understand the potential consequences and know without a doubt that this option is the most appropriate for your situation.
How can I avoid this issue in the future?
You should also ask yourself what you need to do to avoid a repeat issue in the future. And, in many cases, that starts with taking steps to improve your financial literacy. Read books, attend workshops or take online courses about budgeting, saving and investing. The more you understand about managing money, the better equipped you'll be to avoid future debt and build long-term financial stability.
The bottom line
By asking yourself the questions above and honestly evaluating your answers, you can gain a clearer understanding of your credit card debt situation and develop a comprehensive plan to address it. Remember, getting out of debt is a process that requires patience, discipline and persistence. But with the right approach and mindset, you can overcome your credit card debt and ensure that you're taking the right steps toward a secure financial future.
