Credit cards can come in handy when you have an emergency. You can even earn points by putting items on your credit card rather than paying for them in cash. But sadly, if you are not careful, you can end up over-spending and charging way too much on your cards. At this point, you might end up in over your head with payments that are too high for you to make every month. What are your options in such a scenario?
1. Transfer your balances to the lowest-interest card.
Credit card interest can be quite high, which means that a big portion of your payments each month will be going towards interest, rather than paying down your principal. If you can only make the minimum payments, it could take you decades to completely pay off the card.
One option is to look at the terms on your various cards and note which one has the lowest interest rate. If you can transfer all of your debt to that one card, then you will end up paying less interest in the long-term. You will also only have one payment each month, which is much easier to keep track of. If you can pay just a little more than the minimum payment each month, you might be able to get ahead of the problem and pay down your credit card debt in a timely manner.
2. Take out a personal loan.
Maybe none of your credit cards have a low-interest rate. Or maybe your credit limit is too low, and you can't put all of your debt onto one card. In a scenario like this, you could take out a personal loan from your bank and use it to pay off your various credit card debts. Assuming you have a decent credit score of 680 or greater, you can probably get a personal loan at around 14% interest, which is much better than the 20% interest a lot of credit card companies charge.
Before you agree to take out such a loan, ask your bank what the monthly payments will be. Make sure the payments are affordable. If they are not, you could end up defaulting on the loan, which could land you in hot water with the debt collectors and won't leave you any better off than you are right now.
3. File bankruptcy.
What if even the payments on a single personal loan are too high for you? This might happen if your credit score has dropped below 680, causing the banks to ask you for a higher interest rate. In this case, you should consider filing for bankruptcy.
Filing for bankruptcy can be a challenging process. You'll have to hire a lawyer to fill out the paperwork for you, and you'll probably need to attend credit counseling classes. If your application is approved by the judge, your debt will be discharged, which means you'll no longer be responsible for paying off those massive credit card bills.
Bankruptcy does have a negative impact on your credit score. You'll have a hard time taking out any loan — and probably be unable to take out a mortgage — for at least 7 years afterwards. However, this approach might be your best chance at erasing your past financial mistakes and starting over.
There are very strict guidelines as to who can file for bankruptcy. Meet with a bankruptcy attorney like Charles J Schneider PC, and they can look over your bills and bank statements to see if you qualify.
Don't let credit card debt continue to eat you alive! Take one of the three approaches above to regain control.