4 smart ways to get out of credit card debt, according to experts

Credit cards have never been a cheap way to finance purchases, but thanks to the Federal Reserve's recent moves, today's consumers are seeing the highest rates in decades.

The Fed started increasing rates back in March 2022, and since then, the average rate on credit cards has climbed from 14% to over 21%. Rates of this caliber can make it even harder to pay off credit debt, particularly as rates continue to rise (and interest compounds month after month).

"Debt can feel overwhelming," says Michael Liersch, head of advice and planning for Wells Fargo. "What not to do when you're trying to get out of credit ard debt is to ignore it. You can't just pray that you'll win the lottery; you have to address it. "

Are you one of the many Americans dealing with credit card debt? There are solutions that can help. From consolidating your debt to getting on a debt management plan to declaring bankruptcy, you have options. 

Learn more about your debt relief options today.

4 smart ways to get out of credit card debt, according to experts 

Here's what experts say are your best options for tackling credit card debt.

Debt management plan

Debt management plans are offered by credit counseling and debt relief companies. The company will negotiate with your credit card issuers — often securing lower or waived fees or a reduced interest rate — and then create a payment plan for you. You'll then pay a fee to the company each month, which they'll use to pay down your credit card balances. 

Typically, the goal is to have your debts paid off within a few years using consistent, stable monthly payments.

"A debt management plan is designed for consumers who want to make behavioral changes," says Michael Sullivan, director of education at financial counseling agency Take Charge America. "It will save money and pay off debt, but the real benefit is assistance in getting off the credit card bandwagon and learning to live on a budget."

Find out how the right debt relief solution could help you tackle your debt.

Debt consolidation

With debt consolidation, you take out a loan and use the funds to pay off your balances across all credit cards. This rolls them all into the same loan balance and allows you to pay them off with just one payment a month — typically at a fixed interest rate (as opposed to credit cards, which have variable interest rates that change often). 

"A debt consolidation loan works best if your debts are stubborn but reasonable," says Howard Dvorkin, chairman of Debt.com. "That's because you need a strong credit score and history to secure a low interest rate. Otherwise, what's the point?"

Dvorkin estimates that consolidating your credit card debts can reduce your total payments by 30 to 50%, depending on your balances. 

"The downside is that it can take a few years to see results," he says.

Debt settlement

Another option is debt settlement, which involves negotiating with credit card issuers to settle your accounts for a payment that's less than what you owe.

"It works only with unsecured debt — like credit card debt — and is especially appropriate for someone who is having a very hard time making minimum payments and is dealing with the impacts of a financial hardship," says Sean Fox, president of debt resolution at Achieve. 

Consumers can try to negotiate with credit card issuers themselves, but debt relief companies offer help with this, too. 

Dvorkin warns, though, that "your credit score will take a hit, but not as bad as with bankruptcy. You'll need to consult a pro first to see which option is really best for you."

Bankruptcy

Filing for bankruptcy is `the "nuclear option," as Dvorkin puts it. While it may be able to wipe your debts clean, it comes with many repercussions. For one, it will stay on your credit for seven to 10 years. This means it could impact your financial options moving forward.

"Bankruptcy is the in-case-of-emergency-break-glass last resort," Dvorkin says. "It's a legal proceeding that involves going to court and seeing a judge — which means it costs money."

As Dvorkin notes, it also comes at a cost. Estimates put the total cost of filing for bankruptcy — with filing fees, attorney fees, and more — at $1,500 to $3,000.

According to Sullivan, bankruptcy is best suited for consumers with credit card debt so large that there's nothing left for essentials like food, housing, transportation, etc. 

If this is the case, Sullivan says, "it's time to speak with an attorney. It might also be wise to speak to an attorney when your total credit card balances are greater than 30% of your annual income, even if you're making minimum payments."

The bottom line

There are many options for tackling debt, so be sure to weigh yours carefully. "Whatever you do," Dvorkin says, "Don't sign up for more credit cards. I see that all the time. Sure, you now have new plastic with a new credit limit. But what happens when you max out that card, too? At some point, you won't be able to get another card."

Instead, get on a budget and monitor your expenses and spending habits carefully. This will prevent you from repeating the cycle and getting into debt once again. 

"Learn from the mistake," Liersch says. "You don't want to fix your debt issue temporarily or with a Band-aid, if you will. Your goal is true transformation."