8 Must-Knows for Consolidating Credit Card Debt

At a Glance

Credit card debt is avoidable

If you charge only what you can afford and pay the bill in full every month, credit cards can be a great payment tool instead of a revolving door of debt. You can even make money off of your credit cards as most offer cash back, travel rewards, and other perks.

Ways to pay off credit card debt

If you do find yourself in credit card debt, there are several strategies you can use to pay off your debt. These include paying more than the minimum balance, the snowball method, and the avalanche method.

A more complete look at how to get out of debt.

How to consolidate credit card debt

Debt consolidation is a possible strategy for those overwhelmed by credit card debt. Consolidation lowers costs by cutting interest rates and monthly repayments.

Debt affects your credit score

There are five components that make up FICO credit scores, used by the three major credit bureaus (Experian, Equifax, and TransUnion):

Source: Myfico.com

Experts recommend you keep your account balance (i.e., how much you owe) under 30% of your available credit limit. If you have a $15,000 credit limit, you don’t want your balance to exceed $4,500. Many experts suggest keeping your outstanding balance, or credit utilization, as close to zero as possible.

Late or missed payments also can drop your credit score, and negative marks stay on your credit reports for seven years.

Contact your creditors

Creditors are under no obligation to accept less than the minimum payment. But it’s possible to come to a payment agreement that’s more manageable for you with your credit card company. Be sure to contact your creditors before your accounts have been turned over to a debt collector.

Credit counseling

If that doesn’t work, a credit card counseling organization can help you develop a debt repayment plan. Reputable agencies will provide free information about their services without asking for details about your financial situation. If an agency asks for personal information right away, consider it a red flag and find another.

The Federal Trade Commission (FTC) offers detailed advice on choosing a credit counselor that’s right for you.

Use caution around debt settlement companies

Talking to your credit card company to negotiate a payment plan is likely your safest and best bet. But there are debt settlement programs that can assist for a fee. The Federal Trade Commission warns of working with companies that:

• charge any fees before it settles your debts
• guarantees it can make your unsecured debt go away and other suspicious offerings

Investigate any debt relief service before getting involved with them and be sure to get everything in writing. Check them out with your state’s Attorney General and local consumer protection agency to see if there are any complaints against them on file.

Debt services organizations must give you the following information before you sign up:

• Price and terms: The company has to disclose any fees and conditions involved in its services
• Results: The company has to tell you how long it will take for it to make an offer to each creditor for a settlement
• Offers: The organization has to reveal how much money you have to save before it will make an offer to creditors on behalf of you
• Non-payment: If the organization requests that you stop making payments on your credit card bills, this is a red flag. The company must tell you about any possible negative consequences you may face if you stop making payments.

You can’t go to jail for not paying your credit card bill

While you can’t get locked up for not paying off your credit card debt in the United States, you can face other legal ramifications. Depending on what state you live in, you can be sued or have a lien placed on your bank account and/or estate.