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How to Lower Credit Card Debt without Ruining Your Credit

January 18, 2019 · 7 minute read

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How to Lower Credit Card Debt without Ruining Your Credit

Our credit card mentality these days seems to be swipe, swipe, swipe. Need a new outfit? Put it on the credit card. Looking for some new wall art? Swipe. Treating the family to dinner? Swipe.

It’s no surprise that Americans love their credit cards. But unfortunately, all of that swiping has led to credit card debt reaching an all-time high. The average American household carrying credit card debt owes approximately $15,983. With the total credit card debt reaching more than $1 trillion in 2018, what are the options for those currently in credit card debt? While it may seem obvious that one of the best things to do—for both your anxiety and your credit score—would be paying off your credit card debt, that task can sometimes feel insurmountable.

If you’re feeling overwhelmed by the thought of repaying your credit card debt, don’t throw in the towel just yet. From settling credit card debt to negotiating your debt, there are a lot of strategies to help you to pay off this debt. We’ve compiled some strategies that can help you get rid of credit card debt without ruining your credit score.

What Not to Do: Ignoring Credit Card Debt

First, let’s talk about the solution you shouldn’t turn to: ignoring your credit card debt altogether. The consequences of avoiding credit card debt can be steep. When you begin missing payments, your creditor will likely reach out to you via phone, mail, and/or email to notify you of your delinquency.

If you miss enough payments your card account might be shut down and your credit access revoked. Your credit card issuer will report your lack of on-time payments to credit reporting agencies, which might negatively impact your score. If you remain delinquent long enough and do not begin repayment on your debt, your credit card issuer might send your account into collections (whether to an in-house or third party collection agency partner), which can also have a negative impact on your credit score and history.

What You Should Consider: Paying off Credit Card Debt Using a Planned Approach

A great way to manage your struggles with credit card debt balance is by creating a plan for paying off the debt, before it continues to grow. Two common strategies for paying off credit card debt are the “snowball method” and the “avalanche method.”

With the snowball method, you work to pay off your debts from smallest to largest, regardless of the debt’s interest rate. As you pay off each debt, you roll that monthly payment over into the next smallest amount. Remember that although you want to start paying off your smallest debts first, it is important to still be making minimum payments on all of your debt.

With the avalanche method, you begin paying off your debts by focusing on the debt with the highest interest rate. So, if you have credit card debt on two credit cards and one has an interest rate of 8% and the other of 15%, start with the credit card that has the 15% interest rate.

When you pay off that debt, you’d then focus on the debt with the next highest interest rate. While you are focusing on paying off the high interest rate debt first, be mindful that you are not ignoring your other debts completely.

If you’re feeling like you’re unable to pay off credit card debt, consider meeting with a debt or credit counselor to see how they can help. They might be able to offer personalized advice for how you can get out of credit card debt, although they may charge a fee.

Credit Card ConsolidationCredit Card Consolidation

Negotiating and Settling Credit Card Debt

If your credit card debt is not past the statute of limitations, you could still try to negotiate a settlement with your creditor. If you have been failing consistently to make payments, there is a good chance your credit score has gone down and negotiating a settlement with the credit card company may be an option for you to address the debt before it is sent to collections.

Like any business, one of the credit card companies’ primary goals is to make a profit. When it becomes apparent that a person is unable to pay their credit card debt, credit card companies are sometimes willing to find an arrangement that will enable you to make payments based on your situation.

If you choose to pursue settling credit card debt, you can work with a debt settlement company or contact your creditor on your own. If you choose to proceed on your own and a creditor agrees to a debt settlement, they will mostly likely expect either a lump sum credit card debt settlement, or a hardship repayment plan, often based on your current financial situation.

In the first scenario, a lump sum credit card debt settlement means you would come to an agreement with the creditor on a lump-sum of money, and in exchange, the creditor would agree to forgive the remaining debt balance. The flip side of settling your credit card debt with a lump sum payment is that it can adversely affect your credit score. Furthermore, the debt settlement company may advise you to stop making credit card payments—which could end up causing problems if you ultimately decide not to settle the debt.

In the second scenario, the company may be willing to freeze the current debt and work with you to create a repayment plan based on your current income.

Finally, in a temporary forbearance, the credit card company could freeze any combination of the current debt and interest rate and eliminate late fees and penalties for an agreed upon amount of time.

Some debt settlement agencies advertise that they can reduce your debt by 50% or even get you debt-free within 36 months. If you choose to work with a debt settlement agency, there are still no guarantees, and similar to the options listed here, there are both benefits and costs to consider..

Aside from potentially negatively affecting your credit score, these agencies charge a hefty fee for their services. Oftentimes, they will require a percentage of the original debt in fees—so even if they negotiated your debt down 50%, you still might be on the hook for another 25% in order to pay them. Make sure that you find an agency that best fits your timeline, budget, and situation.

You should also know that most forgiven debt is considered income by the IRS. So, if you had $15,000 in debt, you settled it to $8,000, the IRS may consider that extra $7,000 to be taxable income.

What is the Statute of Limitations on Credit Card Debt?

The statute of limitations is a law that governs how long a creditor can sue you for non-payment on a debt. You can check this by requesting a debt verification or validation letter by calling, faxing, or mailing a letter to your creditor. The statute of limitations on credit card debt varies from state to state, but is typically between three and 10 years.

The statute of limitations begins to calculate from the last moment the debt was active, so it’s important to make sure that when you call your creditor, you avoid agreeing to any sort of payment plan until you can confirm the statute of limitations on your debt.

Even if your debt is past the statute of limitations, it may still be within the credit reporting time limit. This is the amount of time credit bureaus can report delinquent account information to your credit report. In most cases, the credit reporting time limit for negative information is seven years.

If your credit card debt is past the statute of limitations, your goal should be to keep your debt balance as low as possible. If your debt was sold to a third-party collection agency, you could try to negotiate a payoff amount to close the collection attempt. Debt collectors buy debt from the original company you owed for a fraction of the original debt total. Because of this, collectors might take less than what you owe if you come with strong negotiation game.

Paying off Credit Card Debt with a Personal Loan

Another option for getting rid of credit card debt is taking out a small personal loan. Consolidating your credit card debt by taking out a small personal loan can result in a lower interest rate or more manageable monthly payments.

Not only do you avoid dealing with creditors and settlement agencies, but using a personal loan to pay off your credit cards can potentially lead to a better credit score in the long run. A personal loan can also provide additional benefits. For example, you’ll be building your credit score as you continue to make on-time payments and use the personal loan to reduce your credit card debt burden. And you’re avoid putting it at risk by turning to a settlement agency, ignoring your credit card debt, or by declaring bankruptcy.

If you are thinking about taking out a personal loan, personal loans at SoFi have no origination or prepayment fees. And if you lose your job, SoFi will temporarily pause your payments and help you find a new job.

If you’re ready to get your credit card debt under control, see how a SoFi personal loan could help.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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