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Paying Off Credit Card Debt: Options & Processes

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In a Nutshell

Credit cards can be convenient, but credit card debt has a way of accumulating. With high interest charges and potential late fees, it can be hard to get out once you've gotten over your head. Fortunately, there are options available to you. This article discusses credit card debt, how it can affect your credit score, and various ways to achieve debt relief.

Written by Attorney Serena Siew
Updated August 1, 2023

Credit cards are convenient pieces of plastic that make spending fun. Many offer cashback or free miles every time you spend. What could be the downside? Three words: credit card debt. No one tells you that making minimum payments results in high interest rate charges or that your credit card balance is related to your credit score. With the pandemic pushing many to spend beyond their limits, many Americans are looking for ways to settle their debts. This article discusses credit card debt, its relation to credit score, and various ways to achieve debt relief.

What’s credit card debt?

Credit card debt is the amount of money you owe on your credit card(s). The debt increases every time you use your card and decreases each time you make payments. Your outstanding credit card debt is the total amount you have left to pay. Your credit card balance is the difference between what you’ve spent and paid back. Credit card companies aren’t always clear on these points. They may also hide high interest rates and late fees in the fine print that explains their terms. Companies know consumers are unlikely to read the paperwork that comes with a credit card.

Credit Card Debt In The United States

Credit card debt accounts for a large portion of American debt, totaling nearly $895 billion in early 2020. The Federal Reserve numbers show that:

  • The average credit card debt of U.S. families was $6,194 in 2019 and $6,270 in 2021.

  • The average interest rate people paid on their credit cards was 16.28% in 2020.

  • Credit card debt increased 39% among adults who were laid off the previous year.

The coronavirus pandemic clearly had an impact on the last group. Credit card debt fluctuated with income and education level, gender, and race. To find out more, check out the Federal Reserve’s current report on the financial well-being of U.S. households.

Relationship Between Credit Card Debt & Credit Score

Credit card debt is one of the most important factors in determining your credit score. This is because payment history makes up over one-third of the tally and the amount you owe on a credit card makes up another third. Credit cards also show:

  • How timely you are in making monthly payments (or how many days you’re past due)

  • How many credit card accounts you have and how much you owe on each

  • Your current amount of credit card debt and your chances of paying it off

  • All your credit limits compared to all your unpaid balances (credit utilization rate)

You can get a free credit report every year from Experian, Equifax, and TransUnion. Check your report for inconsistencies and credit card fraud. In general, avoid late payments or delinquency. If you get into trouble, choose a repayment plan that can set you on the path to rebuilding good credit.

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How to Reduce Credit Card Debt

There are several strategies to eliminate credit card debt. Two debt relief strategies known as the snowball and avalanche methods are DIY repayment plans. Other ways to reduce credit card debt include:

  • Taking out a personal loan (debt consolidation) to pay down your debt at a lower interest rate

  • Getting credit counseling that can steer you toward a debt management program

  • Negotiating with credit card companies to your lower interest rates or monthly payments

  • Filing bankruptcy to become truly debt-free and get a new financial start

Of course, all these methods have drawbacks. For example, a balance transfer comes with a 3-5% fee and you need good credit to be eligible. There’s no one miracle solution just as there’s no best credit card. Don’t be afraid to seek legal advice from a qualified attorney and/or a nonprofit credit counselor to discuss all your options when deciding on a viable payment plan.

Debt Snowball Strategy

The debt snowball starts with making the minimum payments on all your credit cards and applying any leftover money to the credit card with the lowest balance. Once that debt is paid, you move on to the credit card with the next-lowest balance. As you eliminate small debts, the amount you’re able to pay toward your bigger debts snowballs over time. This is great if you:

  • Need to close some credit cards with low balances to reduce your exposure

  • Want to improve your debt-to-income ratio when applying for new credit

  • Keep motivated and inspired by knocking out one low balance after another

Even if you don’t have any extra money to put toward the lowest balance, you’re still snowballing each minimum payment into the next debt. This means if you’re consistent, you’ll still be debt-free sooner than if you did nothing. If you have no money to pay credit card debt, you may also want to consider other options.

Debt Avalanche Method

The debt avalanche method tackles credit cards with the highest interest rates first. Any surplus money should go to pay down your high-interest debts first. Because some credit cards can carry annual percentage rates (APRs) of up to 20%, you can see how the avalanche method can save you money in the long run. If you have a large balance with a high interest rate, you won’t see progress as soon as you would with the snowball method. But if you don’t need this type of positive reinforcement to keep you on track, you’ll save much more money over the long haul. If you’re unsure about how to proceed, read 9 steps to get out of credit card debt as a primer.

Debt Consolidation

Debt consolidation is like refinancing because it requires taking out a personal loan to pay off all your debts. If you're a good candidate for it, bundling all your debt through debt consolidation may have the benefits of:

  • Fixing a lower monthly payment amount than what’s expected from separate accounts

  • Securing a lower interest rate through a personal loan rather than credit cards

  • Simplifying repayment by combining multiple monthly payments into one

But, you’re not guaranteed to get a lower interest rate. You could still get stuck with higher interest if:

  • Your credit is rated as fair or poor

  • You have difficulty qualifying for a personal loan 

  • The new monthly payment is outside your budget

A balance transfer credit card is a common example of debt consolidation because it offers 0% APR for a certain period of time called a promotional period. This option is ideal if you can:

  • Pay off the entire balance by the end of the introductory period without interest

  • Avoid higher interest for any new charges (other than the balance) using the card 

  • Get a credit limit on the new card that covers the amount you owe 

Debt Settlement

If you haven’t made minimum payments for a while, your account has been sent to collections, and you’re facing a credit card lawsuit, debt settlement firms may have already approached you, offering to help negotiate with your credit card companies. But debt settlement has its risks:

  • It’s a paid service and you should be cautious about debt settlement scammers.

  • Debt settlement is not immediate. You still need to make payments for up to four years.

  • It doesn’t work for older debts because lenders have less time and reason to settle.

  • Debt settlement hurts your credit score by staying on your history for up to seven years.

The last point is important. Your account will be listed as settled in full, but this still leaves a bad mark on your credit. Settlement fees can be high but worth it if you work with a reputable company. You don’t have to pay them until your debt is settled. Just know the risks before jumping in.


Chapter 7 and Chapter 13 bankruptcy could be helpful in discharging credit card debt. Once you file for either type of bankruptcy, the judge will grant an automatic stay that stops all collection activities. But like debt consolidation, both types of bankruptcy affect your credit score, so you’ll want to proceed with caution before filing:

  • Chapter 7 bankruptcy begins with a means test that shows you don’t make more than the median income in your state. After that, you’ll need to sell any nonexempt property to pay off creditors. Once that’s done, the court discharges your remaining credit card debt.

  • Chapter 13 is for those who aren’t eligible for Chapter 7 bankruptcy and can afford a 3-5-year repayment plan. Of course, your debts will be negotiated down so you pay less than you owe each month. After 3-5 years, your remaining debt is discharged.

Learn the pros and cons of filing Chapter 7 bankruptcy before using it to erase credit card debt. Bankruptcy should be used only if you’re out of other debt relief options. If your financial situation calls for it, first see if you’re eligible to use Upsolve’s free web tool to file Chapter 7 bankruptcy yourself. If not, Upsolve can help you find a local bankruptcy attorney to consult for free. 

What happens when credit card debt goes unpaid?

The longer you go without paying your credit card debt, the more serious the consequences will be. Credit card companies will charge late fees and higher interest each month, adding to the debt. As the debt increases, your credit score will decrease and delinquency will show on your credit report. If you go more than 90 days without paying, the credit card issuer can send your account to collections. 

If the collections process fails, lenders can file a credit card lawsuit. If you ignore the summons and don’t fight the suit, creditors may obtain a default judgment against you. This allows them to garnish your wages and levy your bank accounts to recover the unpaid debt.

Let's Summarize...

Credit card debt is a major source of stress for many U.S. households, especially during the pandemic. But it does not have to be a paralyzing experience. Now you understand the link between credit card debt and your credit score and have tools to take action. If you’re motivated by taking out one low-balance debt at a time, use the snowball method to get the ball rolling. If you don’t need these wins to stay focused, use the debt avalanche strategy to attack your high-interest debts first. 

Debt consolidation allows you to take out a personal loan to pay off your credit card debts or at least transfer them to one card with a lower interest rate. You can hire a debt settlement company to negotiate for you, but beware of scammers and the hit on your credit score. Bankruptcy will also affect your credit score but may be a good option if you don’t see another solution for paying down debt. When deciding on debt relief, weigh all your options and consult credit counselors or legal professionals for help.

Written By:

Attorney Serena Siew


Serena Siew is an attorney with a specialty in immigration defense and legal writing for the general public. She is a member of the State Bar of California and admitted to practice before the California Supreme Court, the U.S. District Court for the Central District Court of Cali... read more about Attorney Serena Siew

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