How to Pay Off Credit Card Debt When You Have No Money

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In a Nutshell

There are a number of strategies to put in place when you find yourself in credit card debt. Common advice includes tightening your budget, prioritizing your highest-interest accounts and negotiating with creditors. But those strategies only work if you actually have some money to put toward paying down your credit card debt. What are you supposed to do if you truly have little to no money to put toward your debt?

Written by the Upsolve Team.  Reviewed by Attorney Andrea Wimmer
Updated August 26, 2020


There are a number of strategies to put in place when you find yourself in credit card debt. Common advice includes tightening your budget, prioritizing your highest-interest accounts and negotiating with creditors. But those strategies only work if you actually have some money to put toward paying down your credit card debt. What are you supposed to do if you truly have little to no money to put toward your debt?

File for Chapter 7 Bankruptcy

If you’re convinced that there’s no way you can find the money to pay off your debt, then it may be time for a fresh start. Chapter 7 bankruptcy can discharge most, if not all, of your credit card debt. 

In bankruptcy, collection activity is ordered to stop as soon as you file your bankruptcy petition, but all creditors don’t have to stop collecting forever. Bankruptcy isn’t going to eliminate child support, alimony, back taxes, or federal student loans. Bankruptcy will allow you to discharge your unsecured debt like credit card debt, old utility and rent bills, payday loans, unsecured personal loans, and medical bills. 

If you’re low-income, you can file a Chapter 7 bankruptcy. You’ll have to take an eligibility test called a Means Test. The Means Test compares your personal finances and household size against state standards. If you make too much, you can file a Chapter 13 bankruptcy and manage your debts through a debt repayment plan. Unsecured debt you can’t pay during the life of the debt repayment plan is discharged with a Chapter 13 at the end of the plan period. 

Credit card debt is unsecured debt and one of the easier types of debt to resolve through bankruptcy. If you have only credit card debt and limited income, you could be debt-free after bankruptcy! Unfortunately, it’s not that simple with secured debt, like a home mortgage or car loan. Secured debt can only be discharged if you surrender the collateral. For instance, if you have a car loan, you’ll have to give up your car if you want your car loan discharged. You can’t file bankruptcy and get a free car. You can try to keep your car through bankruptcy by redeeming your car or signing a reaffirmation agreement

A Chapter 7 bankruptcy could take less than six months, but a Chapter 13 could last three to five years. For either, you’ll have to meet with a credit counselor at least 180 days before filing for bankruptcy. Consider meeting with a bankruptcy attorney  if you have valuable property, a confusing case, or hate paperwork. If you’re comfortable reading and filling out forms, you can use Upsolve’s website app and file bankruptcy on your own without an attorney. 

Bankruptcy isn’t the best debt relief option for everyone. Your credit cards will likely get canceled. Bankruptcy will stay on your credit report for 7-10 years. It’ll take a few years to build your credit score back up. If you’re worried about having a good credit score, don’t worry, bankruptcy isn’t your only option.

Balance Transfer Cards

Not quite ready to use bankruptcy to wipe out your debt? One alternative is to put it on pause and give yourself a chance to catch up. Many balance transfer cards offer a 0% intro APR for a period of time, often for upwards of a year. This allows you to not only consolidate your credit card debt, but to get a breather from growing interest while you chip away at the principal.

To use a balance transfer card to consolidate debt, you simply transfer your debt to a new 0% or low interest credit card. To qualify for a 0% card, you’ll likely need a credit score of 740 or higher. If you have good to excellent credit, you’ve probably gotten balance transfer offers that entice you with reward points, travel points, and cash back offers. Government reports show balance transfers have increased by 35%—but be cautious before you join the trend. 

Credit cards to transfer balances usually have transfer fees, high interest rate changes, and payment penalties built into the fine print of the credit card agreement. You don’t want your 0% card to turn into more debt with high interest rates! Check the terms.

Checklist for balance transfer fee details: 

Promotional or Intro period: Look for the promotional period or introductory period dates. It might be three months or even 18 months. That’s how long you’ll get your 0% interest rate. Pay as much debt as possible at the 0% interest rate, and don’t charge on your other high interest rate cards during the intro period. You could wind up in a hole of new debt if you can’t pay your debt off before the promotional offer ends. Paying the new debt before the interest rate goes up is the biggest challenge of using a credit card balance transfer for a debt consolidation loan.

Balance transfer limit: Your credit limit will determine your balance transfer limit. Check the terms on the balance transfer card offer to see how much you can transfer at the 0% rate. 

Time limit to transfer: You may have to transfer your debt in 30-60 days for the 0% or special low interest charge to apply. You’ll get a higher interest rate if you don’t transfer your debt to the new credit card by the deadline. 

Transfer fee: Transfer fees are common. It’s usually a percentage of the transfer amount. Let’s say there’s a 3% transfer fee and you want to transfer $10,000 of debt. You’d transfer $10,000 then be charged $300. If you transfer $1,000 it would be $30.00. Some balance cards may have transfer fee limits. The transfer fee is part of your balance transfer limit. 

APR:  This is the annual percentage rate of credit card interest you’ll pay. You’ll probably see an intro APR and regular APR. The rate is per year, but you’ll get charged monthly and it’s in addition to a balance fee. Your intro APR could get canceled for a late payment, then the regular APR would kick in. The regular APR might also apply to all new purchases. The average 2018 interest rate in the U.S. was 20.3% for general purpose cards according to a 2019 report from the Bureau of Consumer Financial Protection (CFPB). It was higher for store cards.

Annual fee: You might be charged an annual fee to use the card. Creditors were paid over a billion dollars from annual fees as of 2018. The CFPB reports the average annual fee is $80. You’ll get charged this fee each year you have the card. 

Credit card issuer: If the debt you want to transfer is from the same company that’s offering a 0% transfer, you might not be able to transfer the debt. 

Check for credit check: Your 0% might be based on a new credit check. 

Cash advances: If your 0% transfer deal offers checks, make sure the check does not count as a cash advance. You could end up with a higher interest rate if it does. 

Late payments, overages, and penalties: Check the terms for due dates, penalty fees for overcharging, and higher interest rates for late payments. One late payment could end your promotional rate and higher interest payments could be overwhelming. People with lower credit scores usually have higher fees. The CARD Act limited late fees, but the fees were increased in 2018 and 2019 to $26 for the first late fee and $28 for the second. 

How do I transfer funds?

Balance transfer credit cards usually process transfers through checks, websites, apps, phone, or direct deposit. The credit card issuer may send you a checkbook with paper checks so you can make checks out to the companies you want to pay. Sometimes, it just takes entering the account information online or on the phone to transfer the old debt to a new balance card. Many balance card companies let you transfer funds using a bank account and direct deposit. 

Snowball and Avalanche Alternatives

You can also consider the debt “snowball” method or the debt “avalanche” method to pay off creditors. In the debt snowball method, you pay all your minimum monthly debt payments, but you pay extra money on the card with the lowest balance first until it’s paid off. Then you do the same with the remaining debt. In the debt avalanche method, you pay the minimum payment on all credit cards, but you pay extra on your debt with the highest interest rates first. When that’s paid off, you work your way down. The debt avalanche method saves money in the long run, but not everyone has money to make minimum debt payments on every account and pay extra. 

You can also try a debt management program or a debt settlement option. 

Debt Management Programs

A nonprofit credit counseling agency can work with you and your creditors to consolidate your debt, lower your interest rate, and set up a payment plan. A debt management plan (DMP) is part of a debt management program. A DMP lets you batch monthly payments from your credit cards into one monthly payment at a reduced rate. 

The first step is to talk to a certified credit counselor—the counselor should be certified by the National Foundation for Credit Counseling (NFCC) so you can be sure the counselor had financial management training and follows the laws. The first counseling session is free. If you decide to start a DMP, there may be a fee for services. Consumer laws require that you’re informed of the fees up front before you start. A debt management program will charge you a monthly fee (around $20-$75) and a setup fee (around $30-$50), but each company has its own pricing scale.

A debt management program is geared for unsecured debt, not secured debt. It can’t help with a car loan, home mortgage, federal student loans, child support or alimony. The DMP will take around 3-5 years and is effective for credit card debt. A DMP agent will negotiate with creditors to lower your interest rates and dismiss late fees so you can get manageable payments. You’ll make a monthly lump sum payment to the DMP agency until you pay off your total debt per the payment agreement. Success is easier when you work with your personal budget to make sure the monthly payments are affordable. You can talk to a credit counselor to see if a debt management program is for you. 

During the term of your agreement, your credit report will show you’re participating in a DMP. When you finish, it’ll show you paid your debt in full. 

Other Tips for Paying Off Credit Card Debt

There are certain fundamentals of debt management that apply even if you’re nearly broke. Keep these tips in mind as you chip away at your debt. 

When you miss credit card payments, it’s expensive. You’ll have more money if you pay off your credit card balance every month. Late fees, penalty fees, and higher interest rates pile on until minimum payments become unmanageable. Over 40% of fees paid on credit cards are late fees, and creditors made $13 billion from late fees in 2018. Wouldn’t you rather have that money? 

It costs the average credit card holder an average of over 18% to use a credit card. That means that a $100 charge on a sale item could be costing you $118.00. That cost is invisible when you make the purchase, but it shows in higher minimum balances and collection notices. 

Creating a budget can help with your credit card debt. What spending can you cut to use that money on credit card debt instead? Can you change your cell service or cancel cable and get a streaming service? It’s easy to get hooked into a plan or subscription but taking time to check out new offers or services could save you money, and you could use that money on your credit card debt instead. Talk to a credit counselor if you feel overwhelmed and need some debt relief options. They might even suggest a debt settlement.

Debt settlement

You can try to negotiate a debt settlement with the credit card companies you owe money. If you’re a few months behind, creditors may accept part of your total debt and forgive a percentage. You’ll get stuck paying taxes on any forgiven debt that’s over $600. Debt settlement will be a partial settlement on your credit report, which could hurt. If you don’t have extra money to pay off a big chunk of your debt, you might be able to work with a debt settlement company to make monthly payments. They can also negotiate for you. If you’re not sure what to do, take advantage of a free credit counseling session with a certified credit counselor at a nonprofit agency and seek professional advice. 

Conclusion

You don’t have to let burdening debt swipe away at your happiness. You just have to find what’s right for you. The Upsolve Learning Center can help you dig into the details about different debt relief options. 

Your credit card debt can go away, it just can’t go away overnight. You took the first step today. Tomorrow you can take step two and think about what debt relief option might be best for you. Upsolve is here to help



Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer

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Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team full time in August 2019. While in private practice, Andrea ha... read more about Attorney Andrea Wimmer

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