What is Credit Card Debt and How You Can Get Rid of it?

What is Credit Card Debt and How You Can Get Rid of it?

Having a credit card debt doesn’t feel quite good. It only allows you to borrow money based on your credit score and finances. When you make use of these cards, it has a credit limit that you have to meet. Only then you can borrow money from the lender. 

You can also call credit card debt as revolving debt. It means if you repay your debt from time to time, you will be allowed to borrow money months after months. 

In case, you are unable to pay the debt, then there will be added interest charged to you. Besides, you might have to face more bad scenarios if you fail to clear this debt.

About Credit Card Debt

If you are currently having any credit card debt, you must be aware of all the information that is related to it. Most people fear about getting into this situation of credit card debt and facing its consequences. 

But, there are various ways through which you can make your payment on time and stay out of debt forever. For this, you must use the credit card as a medium of your payment, not as the revolving debt instrument. 

As it is an unsecured debt, there is no risk of seizing your property if you stop making payments. But, it will hamper your credit score as well as make a negative impact on your credit history.

Which of the Following will Happen if You Miss a Monthly Credit Card Payment?

If you miss the payments to resolve credit card debt, you might have to face certain negative scenarios. Even your credit card company can take legal action against you as well. 

To avoid such situations, make sure you make your payment on time. Now let’s check out what happens when you become a payment defaulter while using credit cards.

1. Late Fee

You might be charged a late fee by the creditors if you miss out on your payments. You will get a billing statement where the amount that you need to pay will be written. Whether this is the first time that you missed the payment or more than that, the details will be verified. Based on that, the amount will be charged.

2. Increased Interest Rate

You might have to provide a high-interest rate in some cases. When you are unable to pay and it crosses 60 days from the due date, then your creditors will increase your interest rate along with a penalty charge. 

As a result, your overall charges will be increased to clear this debt. When it happens, you might have to face difficulties to balance and pay off such a huge amount.

3. Bad Credit Report

Your credit report is important for your credit card debt. Based on your credit report, the creditors will decide whether you are eligible for another debt or not. 

But, if you become a payment defaulter for 30 days or more than that, it might hamper your credit report. Following this, an entry will be added to your credit report that can last for seven years. If you miss payments further, more entries will be added to your credit report.

4. Affect Your Credit Score

When you are unable to pay off your debt, it may affect your credit score. Up to 35 percent of your credit score can be made up through the payment history. But if you become a defaulter, your credit score may drop. However, there are other factors that need to be looked at in your credit score before it drops.

Besides, there is a chance to make the payment before it crosses 30 days. But after that, your late payments will be reported to the credit bureau and you will not be able to avoid any damage to your credit report or credit score.

5. Lose Credit Card Rewards

If you have good credit card rewards, the late payment might seize all of that. As a result, you will not be able to cash in your rewards.

6. Credit Card Default

When you miss your payments six times and it is late by 180 days, your account will be charged off. It will be declared as a loss and directly added to your credit report that will remain for seven days.

How to Get Rid of Credit Card Debt?

If you are frustrated with your credit card debt, it’s quite obvious to looking for some effective solutions.  To understand how to get out of credit card debt, you can follow the below-mentioned strategies.

1. Assess your Finances

If you want to maintain your credit card debt appropriately, the first step is to evaluate your finances. So, make a list and include all the monthly bills, debt that you owe. This will give you a clear idea about the overall debt and the payments that you have to pay for each credit card. 

Once you look at your APR (annual percentage rate), you make better arrangements to reduce your debt. For some initial stages, you might have to pay higher interest rates and sometimes lower. Based on that, you can save your money to pay off the bills on time.

2. Get Control of your Expenses

Most of us spend a lot of money on food, housing, and clothing. If you want to make your payments on time, you need to control these things.

If you have other secured debt, secure it with a mortgage to pay at least a minimum amount of it. As you can get loans on your collateral property quite easily. Hence, you must clear your payments on time else, you might lose your asset.

Along with your collateral loan, you must focus on student loan debts as well. As per federal government law, if you miss paying a student loan debt, it can punish you financially. 

To avoid all these circumstances, ensure you make your payments from time to time.

3. Target Just One Card First

When you have taken multiple debts, it is quite difficult to get out of all of them. Better, you focus on one card at a time before choosing multiple ones. So, it is important to judge your ability and make a short time financial goal to pay off your bills and reduce the debt.

4. Use the Balance Transfer Cards

Instead of paying interest rates, you can use the balance transfer cards. These cards will allow you to transfer high-interest debt to a single credit card with a balance transfer. There are several balance transfer cards available where you will get a 0% interest rate facility. Even some of them offer you to earn rewards that are based on your purchases.

5. Try to Get Lower Interest Rates from your Creditors

If you want to reduce the rate, ask your issuers for a lower interest rate. But you can only do that if you have a good credit card score and make your payments on time. This can be helpful if you get a percentage point or two, which is enough to save you hundreds of dollars annually.

6. Borrow Money from Lender

If you are paying your bills on time, nothing could be better than that. But there are times when you are unable to pay off your bills due to some unexpected circumstances. 

In such cases, you can take help from a peer-to-peer lender. You can borrow money from them and pay off your debt. 

There are several secure sites that offer such loans with fixed interest rates. Compared to credit cards, these are lower and can save hundreds of dollars. If you have a good credit score and a fair job, then you are eligible to get a large amount for the loan.

7. Make Two Minimum Payments on Each Month

Usually, you pay your due payments on a daily basis. It means, if you continue to do so, you can reduce your debt faster. But if you want to pay off your debt quickly, try to make two payments each month.  

For example, you pay the initial minimum amount before the due date and after two weeks, try to make the same amount again. While single payments will take 21 years to pay off the whole balance, with an additional payment it will take less than three years.

8. Get Notifications or Choose Automatic Payments

When you take a credit card debt, you can set up an email or text notification that will help you to pay your bills on time. You can also choose automatic payments to pay off your balance in full each month. These are the best methods through which you can avoid late fees and can deal with your interest in a better way.

9. Keep Checking Your Credit Card Reports

There should not be any negative impact on your credit card reports as these will decide whether you are eligible for the next loan or not. In case you miss your payments, you will have to make that up within 30 days or it will be added to your credit card report. 

Even if your payment is 180 days late, your account will be considered as “in collections” on your credit reports. In some cases, your debt might be handed over to a third party for collections. So, it is important to make your payments on time and avoid such scenarios as credit card debt.