Many people find that careful use of a credit card actually improves cash flow and quality of life without threatening overall household finances. Yet nasty surprises have a way of cropping up. Things can happen, such as a layoff or diminished hours at work, uninsured emergency medical bills, legal troubles and expenses or a car that dies.
All of a sudden, pressing needs command your budget and credit card bills are left for later. Unfortunately, later turns into now very quickly, and the issuer threatens you with collections. When credit card debt is too big to manage, debtors seek relief without going into further arrears.
Read More: How Do Credit Cards Work?
What Aggravates Credit Card Indebtedness?
It all seems so unfair that missing a few payments turns into a quicksand of financial delinquency. Yet the issuing banks can rightly counter that cardholders should know better. After all, the rules of usage are all disclosed, at length, if in very fine print.
Most users know their credit limit, i.e. $1,000, $5,000, $25,000, $100,000, etc. They know that unless they pay their balance in full each month, interest will accumulate. With most cards, the interest rates are variable and tethered to the Prime Rate as set by the U.S. Federal Reserve System.
This, however, does not mean the interest rate on the credit card is equivalent to the Prime Rate, it simply moves up and down as the Prime Rate moves. In fact, the average introductory rate for new card recipients often exceeds 18 percent. If the outstanding balance is high, 18 percent of that will represent a good chunk of change.
Other finance charges include late fees and, after everything is tallied, more penalties for exceeding the credit limit. Needless to say, the best way to manage these financial instruments is to pay in full each month.
Read More: How Credit Cards Calculate Interest
Ways to Deal with Credit Card Debt
Those who find themselves in over their heads with excessive credit card obligations have a few options of which they can avail themselves.
1. Credit Counseling. Consumer credit counseling (CCC) agencies are non-profit institutions that help debt-ridden people get back on their feet. Present in almost every state, they operate under the auspices of the National Foundation for Credit Counseling and the Financial Counseling Association of America. They work with their clients' creditors to create reasonable debt management plans acceptable to both sides of the relationship.
2. Debt Consolidation. Some lenders specialize in debt consolidation loans that pay off the credit card companies and leave the debtor with a single payment at, ideally, a more manageable interest rate.
3. Direct Negotiation. Some card issuers are open to working one on one with customers who are having difficulty making payments. They will attempt to figure out the best debt options for the customer. These include interest-only payments for a defined number of months, curtailing some of the principal to reduce monthly remittances, or allowing for a couple of months of forbearance where no penalties will be charged (although interest will continue to accumulate).
Read More: Credit Card Debt's Effects on Society
What About Grants?
While there are no government grants to pay off credit card debt, there are programs that help with other expenses, ranging from mortgage assistance to health care to tuition payments to legal aid. Receiving such support can free up other funds to help erase the credit card debt.
Important to note, however, is the fact that these forms of assistance are earmarked for low-income households. Those hit hard by COVID-19 or other burdens may now be eligible for these benefits that were previously unavailable.
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Writer Bio
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.