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How To Get Out of Credit Card Debt

Feeling overwhelmed by credit card debt? Here are some practical tips and strategies to get out of credit card debt and regain financial freedom.

Person looking down at a calculator and credit card bills, holding credit cards in their hand

Consumer debt in the United States has hit an all-time high—$930 billion for the final quarter of 2019, with over $46 billion of that being credit card balances.
Any debt can cause significant stress and can potentially damage your long-term credit score. Credit card debt, in particular, can get out of hand quickly. Getting out of credit card debt can be challenging, but we have a few suggestions on how to get started

Why Lower Your Credit Card Debt

One of the biggest reasons to focus on getting out of debt as quickly as possible is that you can use any extra money each month to achieve your financial goals rather than paying down the amounts you still owe. 

Even if you don’t have any goals right now, there may be other lifestyle changes you’d like to make that more money in your bank each month will help support.

Big goals like buying a home are hugely dependent on your credit score. Keeping credit utilization low (in other words, using less of your available credit line) is one of the ways to improve your credit score, which can help when you are ready to look for a mortgage loan.

The more debt you have and hold for long periods of time, the more you’ll pay in interest. Continuing to pay only the minimum balance will result in years of paying off your debt and handing over even more money on the interest as it keeps accruing. 

How to Lower Your Credit Card Debt

Pay More Than the Minimum

Paying more than the minimum due is the easiest first step to take when paying off debt, if you can afford to do so. You should look at your existing budget and find areas to cut back on, particularly in your discretionary spending, like eating out or other luxury categories. 

You could also consider adding an extra source of income, like Uber or Lyft, or selling unwanted items online. If you’re anticipating a tax refund or a bonus at work, some or all of this money could go toward paying off a chunk of your credit card debt.

Transfer Your Balance and Consolidate

If you currently have multiple credit cards, transferring your existing debt balance to a single card can be helpful. This way, you only have to pay interest on one card rather than several at once. 

Look at the cards you currently have open to decide if any can be closed. It should be a priority to close and transfer balances out of high-interest credit cards.

When choosing a new option for debt consolidation, look for cards currently with a 0% APR introductory offer. These offers give you a fixed amount of time to pay off the full balance without accruing additional interest.

First National Bank and Trust’s credit card offers a great introductory rate for purchases and balances, helping you pay off debt faster and build your credit score. You’ll also earn cashback rewards that can help lower your balance further or give you extra rewards to treat yourself. 

Take Out a Debt Consolidation Loan

An alternative option is to take out a personal loan to consolidate your credit card debts. Although adding more debt to pay off other debts may feel counterproductive, it’s much easier and cheaper in the long term to pay off a single debt than having multiple credit cards open.

For many people, a personal loan for debt consolidation has a lower interest rate than a credit card, so you’ll be paying less interest over time. You can determine what that might look like for your level of debt using a debt consolidation loan calculator.

You can also use home equity loans to borrow against the equity you have in your home. Equity is the difference between the value of your home and what you still owe on a mortgage loan. The difference is the amount you can take out in a home equity loan or line of credit (HELOC). If you've built up enough equity in your home, you can take out a home equity loan or line of credit (HELOC) to cover your expenses.

Refinance Your Mortgage

If interest rates are low, you could also consider refinancing your mortgage as part of a debt consolidation plan. Cash-out mortgage refinancing may give you a higher overall mortgage long-term, but with lower interest rates, you could save money on this interest when refinancing.

Cash-out refinancing will also give you a lump sum, much like a home equity loan, by allowing you access to the difference between your new and old loan amounts. The lump sum cash can then go toward paying off your credit card debt. 

Set Up a Debt Management Plan

The best way to begin working on paying off your debt is to put together a debt management plan. If you’re not sure how to do this, there are several resources in both Wisconsin and Illinois that can help. 

Consumer Credit Counseling Service of Northern Illinois offers financial education and support from debt management to financial counseling, while Wisconsin Credit Counseling provides a similar service. The National Foundation for Credit Counseling can also help you decide on the best plan for your current debt situation.

Borrow From Your Retirement

You can always pull from your retirement savings if you are looking for additional cash quickly. But tapping into your 401(k) should never be your first choice. Always explore other options before this. You don’t want to jeopardize your future financial health even further.

While you won’t impact your credit score by pulling from retirement funds, you will face heavy penalties and fees if you can’t repay this amount within a set time. If you leave your job, you may also have to pay this loan back faster than if you were still employed in the business, which can create additional financial stress.

Work With a Debt Relief Company

Depending on your debt level, you could also consider working with a debt negotiation company. These businesses negotiate with creditors on your behalf, but these can be costly.

Working with a debt negotiation company is never a guaranteed solution and may even affect your credit score. This option should always be a last resort.

Cut Up Your Credit Cards

Whether literally or figuratively, cutting up your cards is the easiest way to stop you from spending even more money. Carry cash instead so you can see it leaving your wallet—this is one of the best ways to stop overspending.

You could also consider the envelope-stuffing method of budgeting. Envelope stuffing is when you allocate your cash between different spending categories. For example, you can have an envelope for groceries and a different one for weekend activities. Once that cash is gone, there’s nothing left you can use for that category.

Find the Right Debt Solutions For You

At First National Bank and Trust, we treat our customers like family. Whether you’re an existing customer or a new member, we want to help you find the right loan or credit card to consolidate your existing credit card debt. Contact us today or stop by one of our convenient locations in Argyle, Beloit, Clinton, Darian, Delavan, Elkhorn, Janesville, Monroe, Walworth or Williams Bay Wisconsin, or Rockton, Roscoe, or Winnebago, Illinois.