Effective options to reduce credit card debts without hurting your credit
If you have a lot of credit card debts on your shoulder, consolidating them into one affordable repayment option may make sense. It could simplify your accounts, can reduce the overall interest rate to save more, and can help you to pay off your credit debts faster. You may also settle your credit card debts into a lower amount to save on the debt amount you owe. However, settling your credit cards can have a negative impact on your credit score.
Fortunately, there are ways to get out of your credit card debts without ruining the credit. Let’s have a look at those options and choose the one which is best for you.
Try DIY debt repayment strategies
If you have multiple credit cards and a huge debt burden to pay off, then the best option to manage those credit card debts and keep your finances clean is to try DIY debt repayment strategies. Initially, you have to rework on your household budget, and either increase your income or cut back expenses more. If you can combine both ways simultaneously, you’ll become credit card debt-free very soon. Skipping weekend dine-out or doing a part-time job can do the trick.
Now for the main strategy, you have to pick one debt-repayment method to deal with your credit card debts. The two most popular debt repayment methods are a. Debt snowball, and b. Debt avalanche method. Find free calculators here. In the first method, you have to list all your credit card debts, based on their debt amount and start paying off from the smallest balance first, with making the minimum payment to all the other cards every month. In the second method, you have to list all the credit card debts according to their interest rates, from higher to lower. You’ll start paying off the account with the highest interest rate and put as much as possible towards it. Once it is paid off, target the next highest one.
The best thing about choosing this strategy is you’ll be paying off the total credit card debt balances, so credit score will not be damaged at any cost.
Taking help from your close ones
If you have serious credit card debt issues and need financial help, then you may consider asking money from your close ones. You can ask for money from your spouse, your parents, your relatives, your friends, your neighbors with whom you maintain a good relationship for many years, etc. With that financial help, you could pay off credit card debts and get rid of high-interest payments.
Taking monetary help from them can be helpful to reduce your credit card debt as well as has zero impact on your credit score. It is because you aren’t going into a monetary agreement which can be reported to credit bureaus if you violate your terms (non-payment of course). But it might impact on your relationship with the people who helped you in this crisis if somehow you don’t pay off the money.
Opting for a 0% balance transfer card
Balance transfer method is one of the best options to consolidate high-interest credit card debts (provided link is for example only and not vetted by Powwow, LLC). For this option, you have to apply for a balance transfer card to transfer all the credit card balances. Typically, based on your credit profile and affordability, credit card companies may offer you a low interest or 0% APR balance transfer card, where you’ll be offered a 0% interest in a limited period. The introductory period may last from 12 to 18 months. During that time you don’t have to pay interest on your transferred balances, you only need to pay off the actual balance within that introductory period.
Through this option, you can save interest on all of your credit cards, by transferring the balances into the new card. Then, within the introductory 0% period, you may easily pay off the balance. If you do not pay the balance within the introductory period, the 0% APR will be converted to a traditional high-interest rate, on an average 17.89% APR.
As you are paying off the entire credit card debt balance, no harm will be done to your credit. But yes, while applying for the new balance transfer card, a credit pull will be done by the credit card company which may be considered as a hard inquiry. Apart from that, you may have to pay a transfer fee on the amount you transfer to the new balance transfer card.
Taking out a debt consolidation loan
If somehow you can’t get a balance transfer card, then another safe option to get out of credit card debts is to take out a debt consolidation loan or a low-interest personal loan. Such loans are available at a low-interest rate, compared to the high-interest credit cards. So, if you can borrow a personal loan and pay off all the credit card balances at once, you may save a lot from the interest payment, as well as your credit utilization ratio will be reduced. Here also your credit score remains unharmed.
Now, as for the new loan, you may negotiate with the lender and get an easier loan term and low-interest rate with minimum documentation. Once the loan is approved you can use the money wisely along with paying off credit cards. But make sure you make regular payments on your new loan every month.
Choose a debt settlement program
This might be your last resort to reduce credit card debts without ruining your credit. Normally, if you opt for a debt settlement program, you may settle your credit card debts into a lower amount (typically 40% to 25%) with the creditor. Once the debt is settled, the creditor will add in your credit report that your credit card accounts are “Settled in full”, which means they have settled the accounts with an amount less than the actual debt. This will definitely harm your credit.
So, if you want to avoid such damage to your credit, you should discuss with the creditor and ask them to report your credit accounts as “Paid in full”. Only this way you can keep your credit safe from any damage due to the credit card debt settlement option.
The above-mentioned options are the most popular method to wipe off credit card debts without hurting credit. There are other two options available, borrowing money from a qualified retirement account, such as an IRA or 401(k), and borrowing money against your home equity (cash-out-refinancing). But most financial experts may suggest you avoid these two methods as if you fail to pay these two loans you may lose your retirement savings and your own home.
Written for Powwow, LLC by Patricia Sanders