If you’re close to being maxed out on your credit cards, you may be dealing with an incredible amount of stress. But before you get into panic mode, here are a few things you can do right now to take some of the pressure off.
1. Stop Spending Money on All Your Cards Immediately
The first thing to do is to stop adding to your credit card debt pile. If you’re maxed out on one card but keep using your other cards, it won’t be long until you’re maxed out on another. So stop spending on all your cards and resist the temptation to get a new one. Now is a good time to assess your spending and try to create a realistic budget. Cut out your non-essential spending to figure out how much you actually need for to live on every month.
While it might be tempting to cut out every single expenditure that is “non-essential,” it also may not be realistic to stick to such a bare bones budget long term. Take a serious look at your credit card bills and identify the categories of spending that can be realistically eliminated or reduced. Get some tips on how to create a budget.
2. Pay as Much Over Minimum as Possible
When you’re maxed out, the amount of money you’re paying just in interest every month could be astronomical. Those minimum payments are probably not even putting a dent in your actual debt, which is why you must put as much of your extra cash as possible towards paying off your cards each month. Give yourself the extra money you need to do this by reducing your expenses, as we recommend in #1.
Even if you can just pay a little extra each month, it could end up making a big impact.
Even if you can just pay a little extra each month, it could end up making a big impact. For example, if you’re making minimum payments of $150 each month on a debt of $5,000, it’s going to take you over 15 years and cost you $3,765 in interest alone to pay off that debt. If you bump your payments up to $250, it’ll take a little over 8 years to pay off your debt and only cost $1,760 in interest. The more you can put towards your debt, the more you’ll save on interest.
3. Stay up to Date on All Your Payments
Once you’re allocating a large portion of your discretionary income towards paying off your credit cards, the most important thing to do is to keep on top of your payments. Missing payments or paying late tacks on additional fees and ultimately results in higher interest rates, which in turn adds more to your debt. You need to be sure you’re making at least the minimum payment—hopefully more, as we recommend in #2—on every debt on time every single month.
4. Figure out Your Fast Payoff Approach
There are many different ways you can pay off your debt fast, and you should do research to figure out which plan of attack works best for you. Two very popular ways are the avalanche method and the snowball method.
The avalanche method tackles the debt with the highest interest rate first, whereas the snowball method starts with the smallest debt and moves along to the bigger ones. Learn more about the strengths and differences of the avalanche and snowball method.
5. Negotiate a Lower Interest Rate with Your Creditor
You may not know this, but you can actually negotiate with your creditors to reduce your interest rates. It can be as simple as calling your creditors, explaining your situation, and asking for an interest rate reduction.
Like any negotiation, though, you need to come prepared. You’re much more likely to get a better rate if you do your homework before you make that call. Have your current balance on hand, as well as the amount of interest you have paid over the last year. Do some research on cards with lower interest rates and have that on hand as well. You can use all of that information to explain to your card issuer why they should give you a lower interest rate.
It is expensive for card issuers to lose customers, so in many ways you come into the negotiation with an advantage. It is possible that they won’t be able to make you a deal, but there’s no harm in asking. And coming into the negotiation educated and confident in your knowledge can make a huge difference.
6. Get Professional Help
If you’re in serious trouble and cannot manage on your own through budgeting and negotiation, there are services available to help you deal with your debt.
Credit counselors help you to develop good habits that work for your specific income and life situation. They generally work with you in 5 main areas:
- Budgeting: Taking stock of your income and spending and developing a realistic
plan for your money month-to-month
- Debt Management Plans: A plan that consolidates your debts into one monthly
payment and aggressively pays down your debts
- Bankruptcy Counseling: A portion of the credit counseling relationship that
advises you on the bankruptcy process
- Student Loan Counseling: Specific consideration of your student loan situation
- Housing Counseling: Help with trouble paying your rent or mortgage, or when you are considering buying your first home
Debt settlement is another option for consumers with a large amount of credit card debt. With a debt settlement program, you hire a company to negotiate with your creditors on your behalf in order to persuade them to settle for less than the overall balance of your debt. You then pay off that lower negotiated amount to the creditors.
Need more help figuring out which option is right for you? Check out this article detailing how credit counseling and debt settlement differ and which option is right for you.
7. If All Else Fails, File for Bankruptcy
Bankruptcy is a court proceeding that was developed as a way to wipe the slate clean for people whose debts have completely outpaced their ability to pay them back. If you believe it would take you longer than five years to pay back your current debts, it might be time to consider bankruptcy.
There are two main types of bankruptcy. Chapter 7 bankruptcy absolves you of any obligation to pay off your debts, and might require you to sell off some of your assets in order to repay some of your debts. Chapter 13 bankruptcy re-negotiates your debts and requires you to make your payments to the court.
Filing either type of bankruptcy will severely damage your credit for years, so it is wise to do a lot of research before deciding to file. Explore more about bankruptcy and figure out if it makes sense for you.
If you’ve been relying on credit cards to keep up with your spending habits, maxing them out can be an incredibly stressful experience. It is completely possible, though, to learn from that experience in a way that helps you to get a better handle on your financial situation and spend smarter in the future.