There’s no one-size-fits-all approach to handling credit card debt. The cheapest way for you to get rid of it might be more expensive for your neighbor, and vice versa.
Here are five ways you can erase your credit card debt. The list starts with the less expensive method. Discover which option is the best and most cost-effective for you.
1. Attack the debt with all your resources
This old-fashioned method won’t cost you money, but it will take time and energy.
The get-aggressive approach will be useful if you become organized and have some savings or income to direct toward your debt. You can start with these steps:
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- Stop using your credit card (or cards) and rely on cash for essential expenses.
- Make a list of the amount of debt, interest rate, and minimum payment on each card.
- Use either the debt avalanche method or debt snowball method to target one balance while making minimum payments on all other cards. With the debt avalanche method, you can use your extra money to pay off the balance with the highest interest rate first. Or, you can attack the debt with the smallest amount first by using the snowball method.
- Create or revise your budget to include your debt payoff method while eliminating unnecessary expenses.
Once your budget is in place, you’ll have a better idea of whether you have the income and savings to catch up to your debt. Earning a raise at work, starting a side hustle, or receiving a big tax refund could help. You could even return or sell the stuff bought with your old credit card.
If your interest rate is too high to manage and you don’t have the means of keeping up with payments — let alone making extra ones — you might consider other options listed below.
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2. Use a balance-transfer card
If you have good to great credit, you could transfer the balance from your current card to a new one with a lower interest rate. Some cards offer limited-time zero-percent annual percentage rates (APRs) and don’t charge fees on balance transfers during an introductory period.
This method might seem counterintuitive because it continues your reliance on credit cards. However, the process is not wise, or even possible, for everyone. You’ll need a strong credit score, for example, to be eligible for that kind of no-fee, low-rate card.
Also, you’ll want to make sure you have the savings or expected income to pay off the balance on your new balance-transfer card before the zero-percent introductory APR period expires. Otherwise, you’ll be back to square one.
Before you open a new card, use a balance transfer calculator to ensure the math makes sense for your situation. Some calculators also can help you compare loan offers.
3. Apply for a credit card consolidation loan
Credit card debt is especially difficult to repay because the interest rates are high, costing borrowers a lot. The average rate is 16.84 percent, according to Bankrate.
One relatively cheap way to tackle your debt repayment is to replace it with a credit card consolidation loan, also known as a debt consolidation loan or a personal loan. You pay off your credit card balance with a new loan for the same amount but at a lower interest rate. The rates on the top personal loan companies start below 10 percent and the fees are light.
Enter information about your current debt and potential loan into a credit card consolidation calculator to check the amount you could save with this method.
Other potential benefits of consolidation include:
- Making one monthly payment instead of different payments to card issuers
- Contending with a loan’s fixed interest rate instead of a credit card’s variable rate
- Having a payoff date set by a loan term instead of the never-ending cycle of credit card debt
Personal loans also are available for borrowers with bad credit. However, you’ll likely need to find a creditworthy cosigner for the loan or put up collateral that would be seized if your repayment goes south.
4. Enroll in a debt management plan
You might have tried to talk to creditors about lowering your interest rate, waiving fees, or settling your debt.
If the efforts were unsuccessful, you could enroll in a debt management plan or program (DMP) that comes with the services of a credit counselor.
A credit counselor can help you to budget, create a plan to pay off your debt, and speak to your creditors on your behalf.
Using a DMP, the counselor also would allow you to consolidate your debt into one monthly payment. A small, state-capped monthly fee would be charged for this service. The American Consumer Credit Counseling company, for example, charges monthly fees of $5 to $35.
You don’t need good credit to enroll in a DMP as you would for a balance-transfer card or a personal loan. As with a personal loan, however, using a DMP could take you four to five years to clear your debt.
Be sure to find a company and a counselor via an organization such as the Financial Counseling Association of America, which represents nonprofit counseling companies. Be wary of any debt relief company that promises to wipe away your debt immediately. It could be trying to scam you.
You could also opt for a credit repair company such as Lexington Law if you’re interested in additional services at higher costs. Lexington Law works to help consumers repair their credit.
5. Declare bankruptcy
Bankruptcy should be considered a last resort, especially because it’s the most expensive way to get rid of your credit card debt.
You might see it as an opportunity for a clean slate, but a bankruptcy also affects your future. In some cases, bankruptcy can stay on your credit reports for up to a decade and can harm your ability to find a job or buy a home, according to the Federal Trade Commission.
And even in a successful bankruptcy case, you might not be able to be free of all your credit card debt. Then there’s the cost — hundreds of dollars in court fees alone, and even more for an attorney.
It’s best to discuss your options with a counselor or another financial professional before considering such an expensive method of repaying credit card debt. However, if you opt for a Chapter 7, 11, or 13 bankruptcy, a DMP credit counselor could help with your mandatory pre-filing bankruptcy counseling session.
Find the best debt solution for your situation
If you’re trying to figure out the cheapest way to be rid of credit card debt, you might be addressing your problem in the wrong way. Instead, consider all possible solutions and the benefits of each before picking one that’s best for you.
If you have a good income or solid savings, for example, chances are that you can handle your debt on your own. If not, you might pursue professional help with a credit counselor.
Remember: The best choice for another person won’t necessarily be the right one for you. Take a hard look at your own finances before choosing a solution.
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This article originally appeared on Credit.com.Credit.com is a USA TODAY content partner offering personal finance news and commentary. Its content is produced independently of USA TODAY.
