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3 ways to make your credit card debt cheaper this October
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If you’re carrying a credit card balance from month to month right now, which many cardholders are, you are well aware of how quickly card debt can spiral out of control. While rates on many other borrowing products have been dropping recently, credit card rates have remained high and are currently sitting at an average of 23%, the highest rate on record. Rates on retail credit cards are even higher than that, with the average store credit card rate currently surpassing 30%.
Given how high rates are, you don’t need to have a huge balance for the interest charges to compound quickly. If that happens, it can leave you with that are difficult to budget for. And, if you’re only able to make the minimum payments each month, you won’t make much of a dent in the balance, meaning that it’s even easier for your debt burden to become overwhelming.
So, it’s hardly a surprise that many cardholders are now looking for ways to make their credit card debt more affordable. Luckily, there are strategies to help reduce the cost of carrying credit card debt and knowing how to leverage them can provide much-needed relief this October.
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3 ways to make your credit card debt cheaper this October
These strategies could help make your credit card debt more affordable this month:
Take advantage of debt forgiveness
Debt forgiveness programs, also known as debt settlement programs, offer a way for you to potentially pay off your credit card debt for less than the full amount owed. These types of programs are typically offered by debt relief companies and work by negotiating with creditors to accept a lump-sum payment that is less than the total amount of debt. Once an agreement is reached, the remaining balance is forgiven.
This option can reduce your debt by 30% to 50% (on average) and is particularly useful for those who are struggling to keep up with even their minimum payments. For example, let’s say you have $15,000 in credit card debt spread across several cards and your creditors agree on a settlement amount of $9,000. You would make a lump-sum payment of $9,000, and the remaining $6,000 would be forgiven, drastically reducing the amount of money you owe.
Compare your debt relief options now.
Consolidate your card debt with a lower-rate loan
Another effective way to reduce your credit card debt is through debt consolidation, which allows you to combine multiple credit card balances into one single loan, typically with a lower interest rate. By taking this route, you can streamline the repayment process and save a significant amount on interest charges, especially if your credit card rates are as high as (or higher than) the national average.
You can use a wide variety of loans, including personal loans and home equity loans — both of which have lower average rates than credit cards. Another option is to enroll in a debt consolidation program, which works similarly to traditional debt consolidation but the loan is obtained through a partner lender of the debt relief company you work with. But no matter what route you take, the goal is to try and reduce your interest rate as much as possible to maximize the savings.
Let’s say you have $20,000 in credit card debt with an average interest rate of 23%. By consolidating that debt into a home equity loan with an 8% interest rate, which is about the average you’d get today on this type of loan, you could save thousands of dollars in interest payments over the life of the loan. This also allows you to pay off your debt faster, as more of your payments will go toward the principal rather than interest.
Transfer your balances to a card with 0% APR
If you’re not ready for debt settlement or a consolidation loan, another option to consider is transferring your credit card balances to a card that offers a 0% APR introductory period. Many credit card companies offer balance transfer promotions where you can transfer existing high-interest debt to a new card with no interest for a specified period, typically ranging from 12 to 21 months. This allows you to pay down the principal balance without accruing additional interest.
For example, let’s say you have $10,000 in credit card debt at a 23% interest rate. By transferring that balance to a card with a 0% APR for 15 months, you essentially wipe out the interest charges for over a year, meaning that every payment you make goes directly toward paying down the principal. That gives you a clear path to reduce your debt faster. However, it’s important to have a plan in place to pay off the balance before the 0% period ends, as interest rates will increase after the promotional period.
The bottom line
Reducing the cost of your credit card debt this October may be possible with the right strategy. Whether you opt for a debt forgiveness program, a debt consolidation loan or a balance transfer card with a 0% APR, each approach can help you save money and pay off your debt faster. Before making a decision, though, just be sure you take the time to evaluate your financial situation, research your options and choose the method that best fits your needs.
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Inflation fell in September after hitting a 3-year low in August. Unemployment numbers are low and the Federal Reserve just issued its first interest rate cut in more than four years. While these are all encouraging signs for the broader economy, it will take some time for consumers to recover from recent financial troubles. It wasn’t that long ago that inflation was at a decades-high and interest rates are still exponentially higher than they were just a few years ago.
Against this backdrop, credit card debt has surged with the average user now owing approximately $8,000 to their lenders. And with the average credit card interest rate hovering near a record 23%, it will take a long time and a concentrated effort to reduce that balance. For many borrowers, it may make sense to pursue debt relief, specifically credit card debt forgiveness. However, there are some limits to what this service can do for borrowers. So, will credit card debt forgiveness cover a $25,000 debt?
See how debt relief can help reduce what you owe here now.
Will credit card debt forgiveness cover my $25,000 debt?
In short: yes, a credit card debt forgiveness program can cover your $25,000 debt. The minimum balance for this type of service is typically $7,500. But that doesn’t mean you’ll get your entire balance wiped clean. Credit card debt forgiveness programs typically cover 30% to 50% of the existing balance. So, in this circumstance, you may be able to settle for between $7,500 and $12,500. But you’ll need to qualify for that relief. Specifically, most companies will want you to provide all of the following:
- Debt over $7,500: This applies in this circumstance but if you owe less than that amount you may be better served by turning to a debt relief alternative.
- Financial hardship: If you can demonstrate you’re currently experiencing a financial hardship that’s preventing you from paying your balance, you can improve your chances of approval. This means showing the loss of a job, medical expenses, or more. You’ll need to provide documentation demonstrating this hardship.
- Behind on payments: You’re more likely to get help with forgiving a balance if you’re already behind on your monthly payments. If you’ve been staying up to date, even if with minimal payments, creditors are less likely to help, since that typically demonstrates an ability to make payments, just at a slower pace.
If you currently qualify for forgiveness then consider contacting a servicer now. With credit card rates high and predicted rate cuts unlikely to make a material difference in what you owe, it makes sense to be proactive.
Start tackling your high-rate credit card debt now.
What about a debt consolidation loan?
Credit card interest rates are high now but personal loans are much lower (averaging just under 13% compared to credit card rates at 23%). It can be beneficial for many borrowers to then consolidate their existing credit card debt with a lower-rate consolidation loan. Rates will depend on your credit score and profile but, if your score is high, you will likely qualify for a low-rate loan. This won’t eliminate a portion of your debt like a forgiveness plan would, but you also won’t have to deal with the credit score ramifications that most forgiveness plans result in, either.
The bottom line
If you meet certain criteria, a credit card debt forgiveness program can cover a $25,000 balance. But it won’t cover it in its entirety. And, in many cases, borrowers may be better served by exploring alternatives like debt consolidation loans. No matter which option you ultimately choose, however, don’t let your debt stagnate, particularly at today’s elevated. Explore all of your best debt relief options and choose the one that works best for your financial situation right now.
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