How To Get Out of Credit Card Debt Without Ruining Your Credit

How to get out of credit card debt without ruining your credit
BY Thilini Wijesinhe
Jan 8, 2023
 - Updated 
Jun 14, 2024
Key Takeaways:
  • Select a debt repayment plan like the debt snowball, debt avalanche, or debt consolidation and stick to it.
  • Be proactive in settling problems with lenders.
  • Don’t let your credit score get in the way of becoming debt-free.

It’s easier to rack up debt than to pay it off. If you’re feeling the pressure of mounting debt, you’re not alone. But with the right steps and strategies, you can get out of credit card debt without hurting your credit. Let’s see how.

Three steps to pay off your debt and not hurt your credit

Each step can affect your credit, and if you understand how, you can avoid negative effects. 

#1 Make your payments on time

Your payment history is the biggest contributor to your credit score. That’s why it’s important to make your minimum payments on time while you work towards paying off your cards in full.  

A timely payment history can make potential lenders comfortable. And you can avoid late payment fees and more interest costs.

To stay on top of your payments:

  • Have your debt information in one place.Use a spreadsheet or digital tool to track your outstanding balances. 

  • Set up direct debits. Cover all your minimum payments and more if you can. 

What if you miss a monthly payment?

Usually, nothing happens right away. You have about 30 days to make the missed payment before your lender reports it as overdue. So, aim to settle the complete minimum payment as soon as possible. 

#2 Make a plan and stick to it

Developing a debt repayment plan doesn’t have to be a lot of work. A simple step-by-step plan can help you stay organized. 

Here’re some steps to consider:

  • Use one credit card. That way, you can avoid adding more debt.

  • Keep your credit cards open. Repaying your debt can lower your credit utilization ratio, meaning how much of the available credit you’ve used. Credit utilization affects about 30% of your credit score, according to Experian. They suggest maintaining a utilization rate of around 30% or lower.  Closing an account can increase your credit utilization. But sometimes, closing unnecessary cards might be better for your finances after paying them off. 

  • Select a plan you can follow. In the next section, we’ll discuss the debt snowball, debt avalanche, and debt consolidation methods. 

  • Stay disciplined. If you feel tempted to use your credit cards, hide them somewhere you won’t forget. Consider using cash or debit cards in the meantime. Developing new financial habits like credit card discipline can take some time.

#3 Take care of problems with creditors quickly

Unexpected financial difficulties can happen to anyone due to layoffs, illnesses, or other events. If you’re facing financial distress, talk to your creditors. Try to negotiate a payment plan until you sort things out. Lenders may prefer to resolve matters with you than paying debt collectors or selling your debt to a collection agency at a lower value.

Did you know about hardship programs?

Some lenders offer hardship programs that include temporary concessions like lower minimum payments and late fee waivers until you overcome your financial difficulties.

The good news is that hardship programs usually don’t affect your credit scores if you negotiate them while making timely payments. But your lenders may report the arrangement to credit bureaus. So anyone who checks your credit report may see it.

Check your credit report and sort out any issues like errors or fraudulent transactions right away. You can get a credit report every 12 months at no cost. 

Debt repayment plans that don’t hurt your credit

Now that you know the steps to pay off your debt, it’s time to find a debt repayment plan that won’t harm your credit.

Debt Snowball or Debt Avalanche

Debt snowball: paying your outstanding balances from the smallest to the largest, irrespective of their interest rates.    

You’ll likely feel empowered as you pay off the lower balances fast. This method can have a slightly higher cost compared with the debt avalanche method. 

Debt avalanche: paying your debts in the order of interest rates, starting with the highest rate. 

Paying off the most expensive debt first can save you money.

 Whichever method you choose, make sure to make all your minimum payments on time. As discussed earlier, overdue payments can affect your credit. And paying off your debt can lower your credit utilization rate, which can positively affect your credit score.

Debt Consolidation Loan

Debt consolidation is using a new loan to pay off more than one debt. You can use different loans, like an unsecured personal loan or a loan secured against an asset, to consolidate your credit card debt.

For some people, monitoring and paying off one loan can be easier than many cards. And you might qualify for a cheaper loan than your credit cards, depending on your credit score and Debt to Income (DTI) ratio. 

Let’s look at some ways debt consolidation can affect your credit. 

  • Hard inquiry: a credit check by a lender to approve a credit application. It’s also called a hard pull. Experian says hard inquiries may affect your credit score slightly in the short term, although they’ll be on your credit report for two years.

This doesn’t happen when you or another party checks your credit report for non-lending purposes (soft inquiries). 

  • Paying off revolving debt (credit cards) can lower your credit utilization rate and help your credit score, even if you take on installment debt (like a personal loan) to do it.

  • Having a mix of account types on your credit history (revolving and installment) can impact your credit score positively. 

Remember to pay your new loan on time. That way, you can avoid harming your credit score beyond the short-term effects of getting a new loan.

Balance transfer

Many credit cards offer a 0% Annual Percentage Rate (APR) on balance transfers for a certain period, like 12 months. So you can consolidate your credit card debt and save on interest costs. (There will be a fee for the balance transfer that is often equal to 2-3 months’ interest.)

Check if any of your cards offer balance transfer facilities at a 0% rate. You can also choose one of your cards with a lower rate if it has a sufficient credit limit. 

The next option is to apply for a new card. You might qualify for one, depending on your credit score and DTI. 

Your credit score is affected by hard inquiries, as discussed earlier. 

Don’t let your credit get in the way of paying off debt 

If you’re facing severe financial hardship, you might want to consider a credit card debt relief strategy to get out of debt first. This can harm your credit for a while. 

Here are a few options:

Debt management plan

This is a repayment plan a credit counseling organization can develop for you. They’ll negotiate the plan with the lenders, usually with favorable terms like lower interest rates. You’ll typically make a monthly payment to your credit counseling company, who’ll then pay each credit card. 

Credit counselors can also help you sort out your personal finances in general. 

Here are some ways a debt management plan can affect your credit:

  • Credit counseling organizations will likely ask you to close your credit cards which can affect your credit utilization ratio.

  • Paying on time can positively impact your credit. 

Your creditors may report the debt management plan to credit bureaus, so others who check your credit may see it. 

Debt settlement or debt resolution

Debt settlement or debt resolution is where you’ll negotiate a debt reduction with your creditors. You can do this yourself or hire a professional company to do it for you.

Your lenders may prefer to get paid something over nothing. So, good negotiation can get you a large discount on your debt. 

Here’s how debt relief can affect your credit score:

  • Debt settlement involves halting your monthly payments temporarily if you haven’t already, and that can affect your credit score.

  • Your lenders will likely inform credit bureaus about your partial debt settlement, which can temporarily lower your credit score.

A settled account stays on your credit history for seven years from the first late payment that began the delinquency. 

And according to the IRS, any canceled debt might become taxable income.

You can get out of credit card debt without ruining your credit. You can even improve your credit score through the process. But getting out of debt is only the first part. Developing healthy credit card habits can help you avoid unnecessary debt in the future.

We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during June 2024. The data uncovers various trends and statistics about people seeking debt help.

Age distribution of debt relief seekers

Debt affects people of all ages, but some age groups are more likely to seek help than others. In June 2024, the average age of people seeking debt relief was 50. The data showed that 17% were over 65, and 17% were between 26-35. Are you surprised the youngest person was 18 and the oldest 89 years old? Financial hardships can affect anyone, no matter their age, and you can never be too young or too old to seek help.

Manage Your Finances Better

Understanding your debt situation is crucial. It could be high credit use, many tradelines, or a low FICO score. The right debt relief can help you manage your money. Begin your journey to financial stability by taking the first step.

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Frequently Asked Questions

How to pay your credit card debt fast?

You can use the debt snowball or avalanche methods. Alternatively, you can consolidate your debt. That is, using a new loan to pay off all your cards or making a balance transfer into one credit card. 

How to lower your credit card debt without paying? 

If you’re in severe financial difficulty, consider a debt management plan or a debt settlement strategy to start lowering your credit card debt. For some consumers, bankruptcy is an option. 

How to improve your credit score? 

Timely payments and a low credit utilization rate are two key factors that can improve your credit score. Here are a few other strategies:

  • Consolidate your debt into one loan or credit card to lower your credit utilization ratio.

  • Get a secured credit card and pay its outstanding on time to improve your payment history (if you can’t access regular credit). 

  • Resolve errors on your credit report and disputes with lenders. 

  • Become an authorized user of an account owned by someone with excellent credit.