How to Get Credit Card Debt Relief

If you're currently facing any amount of credit card debt, you’re far from alone. According to a 2024 Bankrate survey, nearly half of Americans carry a credit card balance from month to month.¹ Credit card debt can be intimidating, especially if your minimum payment barely covers the interest costs, making it even harder to move the needle toward payoff.

Although credit card debt can be hard to climb out of, there are options available that could help make your overall debt more manageable. Let’s explore different methods to get relief from credit card debt and other strategies that may help you get control of your credit card payments.

Build a plan to pay off your credit card debt

Here are two common strategies that may help you create a debt payoff plan:

• Debt avalanche: By paying down your credit card debts in order of highest to lowest annual percentage rate (APR), you may pay less money in overall interest. However, it could take longer to pay off that first debt and build momentum using this method.

• Debt snowball: If you want faster results to fuel your motivation, paying off your credit card debts in order of smallest to largest balance could be a better option. The debt snowball method saves you less on interest, but could help you feel more accomplished by paying off one debt faster than the others, even if it is the smallest.

Whether you choose the debt avalanche or debt snowball method, be sure to continue paying the minimum balances on all your other debts every month to keep your accounts current.

Options to help reduce your credit card debt

Here are some other options that may make your credit card debt more manageable:

Contact your card company

If you’re having trouble keeping up with your monthly payments, reach out to your lenders and see if you can negotiate with them. Your card company may be open to negotiating your credit card debt with lower minimum payments or a better APR. You can contact your card issuer and highlight your history of responsible use and on-time payments, if it applies.

Some card companies even offer hardship programs to cardholders going through a job loss or other events that may be straining their finances.²

Consolidation and refinancing

A debt consolidation loan helps simplify your finances by turning multiple bills into a single monthly payment to one lender, which might translate into less than the total you’re paying now. Making one monthly payment may be easier to manage than making several individual payments and could help you avoid accidentally missing one.

Debt refinancing involves getting a new loan to pay off existing debt. Depending on your creditworthiness, this new loan may offer a better interest rate and other terms that could lower your monthly payment and under the right circumstances, may help you pay off your debt sooner.

Since credit card APRs tend to be high, debt consolidation or refinancing may save you more money in interest costs that would otherwise add up quickly on your original card balance(s). It's also important to note that refinancing or consolidating your current debt may result in higher total finance charges if the new interest rate is higher or the loan term is longer.

Balance transfer

Balance transfers let you move a balance from one credit card to another. Some credit card issuers offer a 0% introductory APR for up to 18 months, or longer, for balance transfers made with a new credit.³ You can also receive a similar promotional offer for an existing credit card account. Remember, applying for multiple credit cards regardless if they offer a 0% APR can negatively impact your credit score.

Many credit cards charge balance transfer fees of 3-5% of the transferred amount.⁴ Before choosing this option, keep in mind that a credit card balance transfer offer may have a low APR, but it will switch to a higher, possibly variable rate once the offer period expires. This means that you could end up paying a higher rate on any remaining balance after the offer period is over.

Home equity

If you’ve built up enough equity in your home, a lender may be willing to offer you a home equity loan or home equity line of credit (HELOC) as an option to consider. These are both secured loans, meaning your home is on the line as collateral, so you could lose your home if you’re unable to make your loan payments. It’s important to consider that even if the interest rates are affordable, you still need to take into account appraisal fees and closing costs, which can cause the cost of the loan to add up quickly. Also, a HELOC usually comes with a variable interest rate, which means the APR for your loan could fluctuate — up or down.

How does debt relief work?

Debt relief is a broad term describing programs and strategies used in an attempt to reduce debt. Scammers are eager to take advantage of vulnerable people looking for debt relief, so it’s important to be aware that there are no government-sponsored debt relief programs for credit cards. If you receive any offers claiming to provide government-sponsored credit card debt relief, they are most likely scams.

Keep in mind that the IRS typically considers forgiven debt to be taxable income.⁵ So, if you receive debt forgiveness through a relief program, you may also see a financial impact on your taxes, too.

How to get credit card debt forgiveness

If you’ve found it difficult to tackle your debt on your own and need a little help, some options may be available through debt forgiveness organizations or local programs to help reduce some of your debt without you having to pay it off. Here are a few examples:

Credit Counseling

Credit counseling organizations or consumer credit counseling services (CCCS) are mostly nonprofit and can help you reduce your payment amount by negotiating a lower payment and interest rate. They typically charge limited fees, which are often dependent on the customer’s ability to pay, so be sure to do your research before using their services. Once engaged in an agreement, they help advise on various aspects of personal finance, including debt management and relief.⁶

Counselors at these agencies typically have training and certifications that can help you create a debt management plan (DMP) to reduce your debt and get relief. A DMP is a plan that could help you pay off your credit card debt within three to five years.⁷ Credit counseling agencies use this plan to negotiate with creditors on your behalf to lower your monthly payments and interest rates and possibly waive fees on those accounts.⁸ It generally costs up to $75 to set up the DMP, and then you’ll pay a monthly fee of $25-$50 unless you qualify for an income-based waiver.⁹ Once you set up your DMP, you’ll consolidate your accounts into one monthly payment to the CCCS and they’ll pay your creditor for you.

Here’s a list of approved credit counseling organizations as provided by the U.S. Trustee Program of the U.S. Department of Justice. You can also connect with one of our Certified Nonprofit Credit Counselors to help you create a personalized financial action plan.

Debt Settlement

Debt settlement companies, also sometimes known as debt settlement agencies (DSA) are primarily for-profit and attempt to reduce a customer’s balance by negotiating a settlement with creditors. They typically charge a significant fee to work directly with your creditors to potentially reduce your interest rates, eliminate a portion of your credit card debt, or work out a payment plan.¹⁰

These companies usually require you to stop credit card payments and instead, deposit the funds into a company-held savings account called a “trust account.”¹¹ The amount of time it takes to negotiate with creditors depends on the amount of money you add to the account each month. If they reach an agreement, the debt settlement company uses the “trust account” funds to pay down the debt(s).

While working with a debt settlement company shows that you’re making an effort to resolve an outstanding debt, make sure you're fully aware of the possible risks of working with for-profit companies.

Here's what the Consumer Financial Protection Bureau says about debt settlement companies:¹²

• Debt settlement companies may leave you deeper in debt than when you started.
• They often charge expensive fees and, in many cases, may be unable to settle all your debts.
• Working with them may lead to a creditor filing a debt collection lawsuit against you.
• Unless they settle all or most of your debts, the penalties and fees may wipe out any savings the debt settlement company achieves.
• Using debt settlement services can have a negative impact on your credit score and your ability to get credit in the future.

Visit consumerfinance.gov to learn more about debt settlement companies and other financial topics.

Although debt settlement companies may be beneficial for some, they do come with several risks to consider:

• Credit score damage: Stopping payments to a card company may result in missed payments, and the longer the debt goes unpaid, the more it can hurt your credit score. Because neither the DSA nor the customer are making monthly payments to creditors, the account could go delinquent or potentially charge off as the DSA works toward a settlement.
• Late fees and penalties: Missed payments may bring late fees and penalty APRs, which could increase a customer’s debt.
• Debt relief company fees: Debt settlement companies typically charge fees for their services, which tend to be 15% to 25% of the total debts they’re negotiating.¹³ For example, if a customer has $10,000 in credit card debt, the company may take as much as $2,500 in fees.
• Failure to settle debt: Credit card debt settlement isn’t guaranteed. They often have no up-front agreements with creditors, and some creditors will not negotiate with DSAs. It depends on the card company’s willingness to agree to a plan so, if a customer doesn’t get a settlement, they could face the penalties of failing to pay the debts without any benefits in return.
• Potential scams: The debt settlement industry may be prone to scams. Always make sure you carefully check the validity of each company and its services before providing any personal or financial info.

Be on the lookout for red flags as you research and compare debt settlement companies. If it sounds too good to be true, it probably is.

Bankruptcy

Another option for debt forgiveness is bankruptcy. Bankruptcy may let a customer legally get rid of their debts and is also known as “discharging” the debt. There are two types of bankruptcy that may help you most, depending on your financial situation:¹⁴

• Chapter 7 bankruptcy: Using Chapter 7, you are able to discharge most of your debts within a few months without paying the full amount due. But to pay your debts, you may have to sell nonexempt assets, which are any non-essential assets like family heirlooms, valuables, second vehicles and vacation homes.¹⁵ Chapter 7 bankruptcies leave a lasting impact and could remain on your credit report for up to 10 years. To qualify, you must pass a “means test” to show that you cannot pay down your debts.¹⁶

• Chapter 13 bankruptcy: You may get to keep most or all your assets under Chapter 13 and have some of your debt discharged. Instead, you must follow a three to five-year payment plan to pay down a large portion of the debt. A bankruptcy trustee collects these payments and sends them to creditors. The remaining debt is discharged at the end of this period. This kind of bankruptcy may remain on your credit report for up to seven years. To qualify, you can’t have more than $2,750,000 in combined secured and unsecured debt as of 2024.¹⁷ This number can change each year.

Unlike debt settlement plans, debts discharged through bankruptcy are generally not considered taxable income. Certain types of debts can't go through bankruptcy, including:

• Certain unpaid taxes
• Certain criminal fines
• Some federal student loans
• Unpaid alimony or child support

Both types of bankruptcy may lead to significant credit score damage. Plus, you may have to pay filing and attorney fees. Bankruptcy should be considered a last resort, regardless of type.

Turn your credit card debt into a fresh start

Although it can feel intimidating, credit card debt doesn’t have to stand in the way of your financial goals. Instead, it can be an opportunity to improve your money-smarts and credit management skills. When used responsibly, credit cards can be a useful tool in building your credit. Check out our articles on debt management, budgeting, credit scores and more — to help you take control and get on the path to financial freedom.

Sources:

1 https://www.bankrate.com/credit-cards/news/credit-card-debt-survey/
2 https://www.nerdwallet.com/article/credit-cards/what-is-a-credit-card-hardship-program
3 https://www.investopedia.com/credit-cards/balance-transfer-credit-card/
4 https://www.creditkarma.com/credit-cards/i/what-is-a-balance-transfer-fee
5 https://www.irs.gov/taxtopics/tc431
6 https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/
7, 8, 9 https://www.nfcc.org/blog/which-debt-repayment-method-is-right-for-you/
10, 11, 12 https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-relief-program-and-how-do-i-know-if-i-should-use-one-en-1457/
13 https://www.investopedia.com/how-much-does-debt-settlement-cost-8576484
14, 15 https://www.experian.com/blogs/ask-experian/bankruptcy-chapter-7-vs-chapter-13/
16 https://www.findlaw.com/bankruptcy/chapter-7/exempt-vs-non-exempt-property-under-chapter-7.html
17 https://www.experian.com/blogs/ask-experian/what-is-bankruptcy-means-test/