The best strategies for paying off credit card debt

Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: The best strategies for paying off credit card debt include avalanche or snowball strategy, paying more than the minimum, negotiating with creditors, making a consumer proposal, enrolling in a hardship plan, using balance liquidation plans, finding alternative funding sources, responding to creditors promptly, and seeking debt relief through counseling or bankruptcy.

With its many benefits, a credit card can make your life easier. You can buy on credit and pay later. It's a widely accepted payment method and may even improve your credit score if everything goes well.

Consumers don't anticipate credit card debt piling up and becoming the problem rather than the solution. Your financial situation changes, and before you know it, debt collectors are after you, the credit score you were hoping to improve is in the trenches, and worse, you may have to deal with lawsuits.

What can you do to liquidate your credit card debt with minimal stress? The best credit card debt liquidation strategies include:

Deciding on a suitable repayment method
Working with creditors
Finding an alternative source of money
Responding to creditors
Debt relief

Come up with a repayment plan that suits you

Most cards have high-interest rates, and the fine print allows credit card companies to increase the interest rates tremendously if you start missing payments. Such increases in interests rates can drive you to bankruptcy if not taken care of. Depending on how many credit card accounts you have, try one of the following strategies:

The avalanche strategy

You'll need to analyze your credit card interest rates. Then start by paying off the debt with the highest interest rates. You can save a significant amount just by reducing the period for paying back high-interest debts.

The snowball strategy

This strategy also requires you to analyze the interest rates on each card. However, this time, start by paying off the card with the lowest interest.

The idea is to ride on the sense of achievement once you clear each debt. Keep moving on to the next highest interest rate card until you're done. Once you have paid off a card, you will roll the money you were paying against that debt to increase the amount you can pay each month on the next credit card in line. You may not save on interests, but you'll feel encouraged to keep going as you close one debt after another.

Both this and the previous strategy require that you make the minimum monthly payments for every credit card so that no account suffers.

Pay more than the minimum

When you can still afford to, get into the habit of paying more than the minimum monthly requirement. You'll clear your debt faster, and in case you fall into hard times, you'll have it easy negotiating a hardship program.

Work with your creditors

Instead of running from creditors, work with them. You'll be surprised how many creditors are willing to listen and help you develop a repayment plan that suits your needs. Some common plans include making a consumer proposal, negotiating a hardship plan, and taking advantage of balance liquidation plans.

Make a consumer proposal

A consumer proposal is a request made to your creditors to extend the debt repayment period or to allow you to pay a percentage of what you owe. You're explaining to the creditor that you're going through rough times and cannot pay the total amount owed.

Once you make a consumer proposal, the creditors are required by law to respond within 45 days. If your proposal is accepted, you won't lose your assets, cars, and investments to cover debts.

If you decide to go the consumer proposal way, you'll need a Licensed Insolvency Trustee (LIT). The job of the LIT is to help you split payments appropriately among creditors.

Negotiate a hardship plan

If you fall into hard times, you may enroll in a hardship plan. This option is great if you're close to defaulting. Even though interest continues to accumulate after your creditor accepts a hardship plan, the monthly payments are lowered so that you can afford to pay without defaulting.

Take advantage of balance liquidation plans

You may also ask your creditor if they offer Balance Liquidation Plans (BLPs). Many banks have in recent years started offering BLPs. A BLP is better than putting your card in the freezer. With BLP, you surrender your card to prevent more debt from accumulating.

Once you surrender or void your credit card, it appears on your report as a “closed account” instead of a defaulted one or a settled account. The interest rate is capped at between 0-12%, and duration is limited, usually up to 5 years.

The advantage of BLP is that you can pay in time and keep a good credit score after filing because of the capped interest and a “closed account.”

Find an alternative source of money

If credit card debt gives you sleepless nights, you may consider other means of obtaining money to cover the debt. For example:

Sell some of your assets to raise money
Withdraw money from your retirement accounts to cover the debt. Early withdrawal may have consequences, but at the very least, you'll get rid of debt.

Respond to creditors

It may not sound like a strategy, but this is the most critical step. Never run away from creditors. Most likely, your creditors are hoping you ignore calls and court summons so they can automatically win against you. You can end up in a dire financial situation if that happens.

Like many consumers, you may not know how to respond to debt collection calls or lawsuits. Use SoloSuit to respond to creditors appropriately and in time. After all, the first step to getting your finances in order is accepting that there's a problem and facing it.

Consider seeking debt relief

There's always a way out. When push comes to shove, consider seeking help through debt relief. This option isn't popular, but it can alleviate some of the stress of dealing with debt. You may:

Contact a Credit Counseling Agency to help you with debt management
Consider settling the debt
Apply for a Chapter 7 or a Chapter 13 bankruptcy.

Drowning in debt isn't something anyone imagines will happen to them. However, life happens, and you may fall back on your credit card payments. When that occurs, all hope is not lost.

Depending on your circumstances, you have several options available to you. Analyze your situation and decide what works best for you, whether that's strategizing on a repayment plan, working with your creditors to find a plan that works for both of you, or seeking alternative means.

Whatever strategy you choose, keep in mind that the most crucial step is to respond to debt collectors and creditors. You can't afford to ignore them. SoloSuit makes it easy to send an answer to debt collectors.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

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"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James

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