5 Popular Strategies People Are Using to Escape Credit Card Debt
As inflation spiked over the last two years, almost half of Americans have taken to relying more on credit cards to make ends meet.
A survey of 1,000 U.S. adults conducted by consumer website Debt.com finds 45% of Americans have been pushed by inflation to use their credit cards far more frequently.
In the last two years, inflation has taken a toll on consumers. Even as inflation shows signs of slowing down, and the Federal Reserve has pressed the pause button on its inflation-combatting interest rate hikes, the effects still loom large on personal finances.
According to the survey, half of Americans are carrying a higher credit card balance now due to inflation, and more than 30% have maxed out their credit cards sometime over the past two years. Nearly three in 10 of survey respondents said they didn’t know what their average credit card annual percentage rate (APR) is, either.
Getting out of credit card debt
Debt.com’s survey found that 58% of Americans have never tried the possible solutions highlighted below for getting out of their debt. Bear in mind, though, that the survey didn’t necessarily focus just on people struggling with debt. It included all Americans — and many of them don’t have any debt to pay off.
Of those who have explored different strategies for helping to pay off credit card debt, here are five of the most popular options:
Debt settlement, a strategy considered by 6% of respondents, is the process of negotiating your credit card debt with your creditor. This can be a negotiation that you lead on your own, but there are plenty of third-party debt settlement companies as well.
Debt settlement isn’t a guaranteed thing, though; your lender doesn’t necessarily have to agree to settle and accept a lower amount than what you owe. It’s also not the fastest method out there, and it can lower your credit score, making it a riskier route. You’ll also need to pay the settlement company; fees tend to average between 15% and 25%, paid when the settlement is reached.
Sometimes, all you need is a little know-how. Credit counseling, considered by 7% of survey respondents, is a good path for those who think they can manage their debt as-is but need guidance. Credit counselors provide their clients with the education aspect of debt management, and they can help pinpoint the personal goals to managing your own unique case of debt.
Oftentimes, though, credit counseling comes at a price. While many services offer free first sessions, companies can charge up to the federally-capped $79 in Debt Management Plan (DMP) fees and an additional fee which averages at about $40.
One of the most inexpensive methods for managing your debt is DIY planning. Most credit counselors charge rates to help you come up with your debt management plan, unless you use a non-profit or other method of free assistance.
An alternative is planning ways to get out of debt on your own. The options range from creating a budget and reducing expenses to evaluating your own credit report for errors. About 14% of respondents have looking into trying DIY methods for getting out of credit card debt.
Debt consolidation loan
Debt consolidation is the practice of transferring multiple debts into a single loan, so that you don’t need to worry about paying multiple bills each month. One of the more popular debt management methods, 16% of Americans have considered giving it a try.
For some people, this could make the debt load more manageable, and it can sometimes even lead to a lower overall interest rate. Drawbacks to this method of management include origination fees to creditors and longer repayment periods.
Credit card balance transfer
A popular type of debt consolidation is that of the credit card balance transfer. These credit cards allow you to consolidate your credit card balances and outstanding loans into a single new credit card.
The best balance transfer credit cards often come with lower interest rates and friendly introductory periods; many offer 0% APRs for the first 12 to 21 months. Balance transfer credit cards are the most popular option for Americans in the survey, with 19% considering them as a way to manage their debts.