Serious credit card delinquencies are the highest they’ve been in 15 years, according to recent data from the Federal Reserve Bank of New York. These are balances that are 90 days or more past due.
For certified credit counselors, who spend their days helping everyday Americans dig themselves out of debt, this number isn’t a surprise.
“Every time it seems like things are getting just a little bit better, there's another one-two punch waiting for consumers around the corner,” says Lara Ceccarelli, a certified credit counselor based in Bremerton, Washington.
The latest blow has been the spike in gas prices, though costs for other necessities, like housing and groceries, remain high. For people who turn to credit cards to help make ends meet, costly interest rates can trap them in a cycle of minimum payments. But these payments barely touch the principal debt.
If you're falling behind on your credit cards, the three counselors I spoke to all agreed there's a way out. But you need to face the problem head-on. Here's what they told me.
Get a clearer picture of your debts
When working with a new client, a credit counselor will review their finances, including any debts. You can perform a similar audit by listing out your current credit card balances, interest rates and minimum payments, says Codi Morris, a certified credit counselor based in Dayton, Ohio.
From there, determine which debt is doing the most damage. Credit cards with the highest interest rates tend to eat up the bulk of your money, so consider trying the avalanche debt payoff method first. That’s when you pay more than the minimum due on the credit card with the highest rate, while still paying the minimum on your other cards. Once the card with the highest rate is paid off, you move on to the second-highest and so on.
If you have a few smaller balances that are easier to wipe out, you can also try the snowball method, or paying off your balances from smallest to largest. This gives some quick wins as you start tackling the debt, which can be especially motivating.
These methods won’t work though if you find you don’t have the money to spare.
While funneling even a couple hundred dollars extra toward the principal debt makes a difference, not everyone can afford to do that, says Tom Eichas, a certified credit counselor in West Palm Beach, Florida.
In those cases, it’s worth getting outside help by reaching out to a nonprofit credit counseling agency and working with a credit counselor. Rest assured, counselors are used to seeing all kinds of different financial situations, Eichas says.
“We have clients that are 88, and we have clients that are 18, and just because they have a lot of credit card debt doesn’t mean they’re bad people,” he says. “Sometimes hardships just happen. Life happens. But we have an opportunity for them.”
Find ways to lower your interest rates
Counselors will typically enroll you in a debt management plan (DMP), which lumps your credit card balances into a single payment with a reduced interest rate.
Since interest rates are “the most powerful mechanism” keeping consumers in debt, getting the rate down is key, Ceccarelli says.
There’s no credit requirement to enroll in a DMP, and you’ll only pay a small enrollment and monthly fee. However, you won’t be able to use your credit cards while enrolled in the plan.
Another way to lower interest is through debt consolidation. This is when you roll high-interest debts, like credit cards, onto a lower-interest product, like a debt consolidation loan. This makes the debt easier to pay off.
Morris suggests calling your creditors to ask about hardship options before taking on a consolidation loan.
“In some cases, clients use that loan to pay off the creditors who would have been willing to work with them, while still being left with debts that are harder to resolve,” she says.
A credit card company may offer you a reduced interest rate or agree to other favorable terms, like a payment plan. Make sure you get any agreement in writing.
Don’t ignore the problem
The exact payoff strategy you choose is not as important as choosing a strategy, period — and sticking with it.
Eichas says one common mistake clients make is thinking that once a lender charges off a debt, they’re officially in the clear. But in fact, that’s when things start to escalate.
“Debt buyers buy up debt very quickly these days,” he says. “And once they have it, they can engage in all kinds of collections activity, including suing, getting a judgment and enforcing a judgment based on state laws where the client lives.”
Judgments can include wage garnishment, a bank levy or even a lien on your property.
If your debt has been sold to a collections agency or other debt buyer, it’s important to verify the accuracy of the debt and come up with a plan to deal with the debt collector directly. You can propose a payment plan or settle the debt for less than you owe.
If you receive notice of a lawsuit, make sure to respond by the deadline to avoid a default judgment. An attorney can also help you navigate a lawsuit, and some offer free or low-cost help. But you’ll need to take the step to reach out.
The credit counselors I spoke to all agreed that guilt or embarrassment keeps people from acting in their best interest when it comes to debt. This only makes the situation worse.
“There’s so much shame around credit card debt," Morris says. "But what I’m seeing is that it’s often tied to rising costs and financial pressure, not just overspending. I want people to know that reaching out for help isn’t a sign of failure, it’s a step toward taking control.”
