Question: “I have $43,000 in credit card debt and I can’t pay it anymore. But I really want to be debt-free. I know I need help. Where should I look and who should I talk to?”
Answer: “A nonprofit credit counseling agency would be a great first step. They can help you negotiate with your credit card company and also assist in creating a budget while deepening your understanding of your finances,” suggests Mary Clements Evans, a certified financial planner with Evans Wealth Management.
Evans points out that many people find themselves in debt but often bounce back. “That’s why counseling is crucial—not just a payment plan. You need to grasp the ‘why’ behind your money issues and what led to your credit cards being maxed out,” she adds. It might also be beneficial to collaborate with a financial planner on an hourly or project basis to gain a clearer view of your financial landscape.
Alonso Rodríguez Segarra, a financial planner at Advice Financial, emphasizes that, when dealing with credit card debt, it’s vital to ensure the factors that caused high debt levels are addressed before starting any debt management plan. “You can talk to the National Foundation for Credit Counseling (NFCC), but if your spending exceeds your earnings without a clear understanding, you might not see lasting change,” he remarks.
Richard Barrington, a financial analyst at Credit Sesame, notes that there’s no straightforward solution here. “The sooner you start making constructive moves toward a resolution, the sooner you’ll feel better about your financial standing,” he says. It’s important to reflect on whether your situation is a one-off setback or a pattern of continuous overspending. “[If it’s the latter,] set up a budget to ensure your income covers your expenses. This could involve cutting costs or finding ways to boost your income, like changing jobs or picking up a side gig,” he advises.
Creating a budget not only helps alter spending behaviors leading to debt but also allows you to allocate a specific amount monthly toward paying it off. “Meanwhile, think about any assets you might have that could help. This could be anything from savings to items you can sell that have significant worth,” Barrington advises.
Also, consider where you definitely don’t want to spend in terms of discretionary expenses—like your retirement savings. “If you’re under 59 and a half, be aware of potential tax implications. And please remember to talk to your creditors. People often avoid them when bills pile up, but it’s best to reach out. If you have a reliable plan to pay what you owe, see if your creditor might offer some leniency or help with delaying payments,” Barrington explains.
Be cautious with quick-fix options. “Ask clearly, in writing, what fees will apply from anyone trying to assist you. Typically, your best pathway out of this situation involves cutting back on spending and increasing your earnings,” Segarra advises.
Have you thought about refinancing? “If a lower interest rate or extended payment period could ease your debt burden, refinancing might be a good move. Personal loans often come with lower interest than credit cards, or you could consider a balance transfer credit card with a 0% interest rate,” suggests Barrington.
Consolidating your debt into a personal loan is another option. “This provides a predictable payment schedule and reassures you of a timeline to eliminate your debt,” shares Chris Fred, head of U.S. credit cards and unsecured lending at TD Bank. However, be mindful of potential pitfalls, like extended repayment terms, which could hike your overall payment due to associated fees.
Taking a personal loan does affect your credit then. Since monthly payments are fixed, missing deadlines can lead to late fees and credit damage. So, look for loans with low interest rates and minimal origination fees. If rapid repayment to reduce interest costs is your goal, seek out loans without penalties for early repayment.
Lastly, if talking to your creditor or considering refinancing isn’t fruitful, you might think about negotiating to settle your debt for less than what’s owed. “This usually applies to unsecured debts. If a creditor anticipates that full payment isn’t feasible, they might accept a lesser amount rather than risk collecting nothing,” Barrington informs.
That said, negotiating a settlement can be done on your own or with the assistance of a debt consolidation expert, but remember—it’s not debt forgiveness. If you engage a professional, there will be a fee, and any settled debts will be reported as unpaid in full, complicating future financing prospects. There might also be tax implications unless you’re classified as legally insolvent. National Debt Relief, Freedom Debt Relief, and InCharge Debt Solutions are some noted organizations in debt resolution and relief.
Going forward, a comprehensive financial plan could significantly aid in managing expenses and guiding you into the next phase of your life. Some financial planners work on an hourly or project basis, so established ongoing relationships aren’t necessary. Hourly rates range from $200 to $500, while project work might cost between $1,500 and $7,500. In any case, a planner can help design a thorough plan you can follow yourself, and if specific questions arise, hourly consultations are available.
