How to Tackle Credit Card Debt

Credit card debt in the United States has reached record levels, climbing to about $1.3 trillion. That works out to more than $10,000 in high-interest debt for the average family.

If you find yourself struggling with credit card balances, financial experts say the most important step is not to panic, but to create a plan and take action.

One of the first steps is communicating with your credit card company if you are facing financial trouble. If you cannot make the minimum monthly payment because of a financial emergency, contact the issuer right away. Explain your situation, describe what you can realistically afford to pay, and discuss when you may be able to resume normal payments. Experts recommend keeping written records of any agreements you reach.

Another option is working with a nonprofit credit counseling organization. These groups can help with budgeting and financial planning, and they may recommend a debt management plan that consolidates payments and may lower your interest rates.

Consumers should be cautious about for-profit debt relief or debt settlement companies. Some of these businesses promise to eliminate debt quickly but may encourage people to stop paying their bills or stop communicating with lenders, steps that can severely damage credit and lead to additional fees or legal action.

For some borrowers, a debt consolidation loan may help simplify repayment. These loans combine multiple debts into a single fixed-rate payment, often with repayment terms of up to 7 years. Banks, credit unions, and many online lenders offer these loans, and some lenders allow applicants to preview possible loan terms without affecting their credit score.

When debt becomes overwhelming, more serious solutions may be necessary. If credit card balances exceed about 40 percent of annual income and appear unlikely to be paid off within five years, financial experts say bankruptcy may be worth discussing with an attorney. A legal professional can explain the advantages and drawbacks based on a person’s individual circumstances.

While high levels of debt can feel overwhelming, financial counselors emphasize that taking clear steps toward repayment can gradually restore financial stability.

Sources: Consumer Financial Protection Bureau, NerdWallet