Credit Card Debt -FAQ’s

Not all debts are the same and they work very differently depending on what kind of debt it is. Credit card debt is unsecured revolving debt, while debts like your mortgage and car loan are considered secured installment debts. Learn more about the types of consumer debt.

Credit card interest is a fee you pay for borrowing money. The credit card company sets an annual interest rate (APR), which they then break down into a daily rate. This daily rate is applied to your average daily balance, which is calculated from your daily balances throughout the month. If you pay your bill in full by the due date, you generally avoid interest charges. However, if you carry a balance, interest accrues daily and is added to what you owe, causing the debt to grow. So, it’s a daily fee that compounds, meaning it’s charged on both the original amount and the accumulated interest, making it more expensive the longer you carry a balance.

Penalty APR is the annual percentage rate (interest rate) your creditor applies to your account if you are late or miss making a payment. It is often much higher than your regular interest rate. If you are less than 60 days late then the penalty APR is usually only applied to new charges. If you are more than 60 days late it can be applied to your total balance. Penalty APR is typically applied for 6 months.

The effects on your credit rating can vary widely depending on your situation. However, factors like having a large amount of total debt and/or having a negative payment history if you’re late or miss payments can have a negative impact on your credit score. If you feel like your credit rating is being brought down by your debt, give us a call and we can offer advice on how to pay off your debt and how you can rebuild your credit.

While the average American carries a balance around $6,380, ‘normal’ depends on your situation. More important than the exact amount is how well you manage it. Aim to use less than 30% of your available credit, and make sure you can comfortably afford your payments. If you’re struggling with minimum payments or high interest, your debt is too high, regardless of the average.

According to a recent report from Transunion, the average individual credit card balance is roughly $6,380. However, this number is influenced by economic shifts and spending habits, and it varies significantly by location, age, and income. So, while $6,380 provides a general benchmark, your personal debt situation may differ greatly. It’s more important to focus on managing your own debt responsibly than comparing yourself to a national average.

Paying only the minimum on your credit card means you’ll hold onto that debt much longer. Because most of your payment goes toward interest, the actual amount you owe decreases very slowly, leading to significantly higher interest costs over time. While you avoid late fees, a consistently high balance can negatively affect your credit utilization, a key factor in your credit score. This can also strain your finances and limit your ability to save. Essentially, minimum payments keep your account active, but they make paying off your debt far more expensive in the long run. To see how long it will take to pay off your card only making minimum payments and how much interest you’ll pay, use our Credit Card Minimum Payment Calculator.

There are a few different methods to quickly pay off credit card debt. The best method for you will depend on how much debt you have, how much room you have in your budget for payments, your credit score, and your goals. Start with creating a budget and prioritizing repayment using the snowball (smallest balance first) or avalanche (highest interest first) method, and increasing payments above the minimum. You can also consider a balance transfer or debt consolidation loan for lower interest, and negotiate with your creditors for a lower interest rate. Boosting your income with side hustles and avoiding further credit card use can also be helpful in paying off debt. If DIY methods fail, call in the professionals. A credit counselor can go over debt relief options and help you find the one that works best for your situation.

Always pay the requested amounts due on all your debts, but if you have any extra money left focus on paying off one debt at a time. Since mortgage and car loan payments are fixed, there is not a large benefit in paying more than the amount due. Paying down credit cards reduces your monthly payments, so these are good candidates to pay off first. When deciding which card to pay off, it is generally to your advantage to pay off the highest interest rate card first.

Your credit card interest rate can increase despite on-time payments for several reasons. Primarily, most cards have a variable APR that fluctuates with market interest rates. Changes in your overall creditworthiness, even from other accounts, can also trigger a rate hike. Additionally, promotional low rates eventually expire, returning to the standard, higher APR. Credit card companies can also change their policies, and risk-based pricing allows them to adjust rates based on perceived risk. While less common now, past policies allowed for increases due to general credit score declines. To understand why your rate changed, review your cardholder agreement, check your credit report, contact your issuer to negotiate, or consider a balance transfer.

You can try to negotiate your credit card debt down. This means trying to get your credit card company to agree to you paying less than you actually owe. They might agree because they’d rather get some money than none at all. You can try to negotiate on your own, hire a debt settlement company (but they’ll charge fees), or get help from a nonprofit credit counseling agency. Keep in mind that negotiating a lower payment can hurt your credit score, and any forgiven debt might be considered taxable income. Always get any agreement in writing. So, while negotiating is possible, it’s important to understand the potential downsides.

Credit card debt rarely gets completely “forgiven” outside of bankruptcy, which legally discharges certain debts. However, you might be able to negotiate a lower payment through debt settlement, though this hurts your credit. Some creditors offer hardship programs for temporary relief and may agree to forgive some debt. Accounts can be “charged-off”  but that doesn’t erase the debt. Instead it marks it as a loss for the lender, who may still pursue collection. Be cautious of scams promising debt forgiveness, and understand that any debt relief strategy has potential consequences.

Unpaid credit card debt doesn’t ever really go away unless it’s discharged through bankruptcy, a  debt settlement is successfully negotiated and completed, or the creditor chooses to forgive the debt (which is rare). After seven years, negative information about your unpaid credit card debt disappears from your credit report, improving your score. However, the debt itself doesn’t vanish. Your state’s ‘statute of limitations’ sets a time limit for creditors to sue you for the debt. Once that expires, they can’t take you to court. Still, they might contact you for payment. While they lose the legal right to sue, they can continue to attempt collection. So, while your credit report clears and legal action is off the table, the debt may still be pursued. If you pay anything towards that debt, the statute of limitations resets.

This varies for everyone, but there are often signs you can look for that indicate you need debt relief. It may be time to seek help if you can’t afford the monthly payments for all your debts, you’re taking out cash advances to cover your bills, or you’re getting further and further behind each month. These kinds of danger signals are clear indicators of a debt problem that needs relief.

The ideal debt relief option depends on your specific situation, but debt management programs are often a solid choice for many, especially if you don’t have good credit. Unlike bankruptcy or debt settlement, which can severely impact your credit, these programs focus on creating a structured repayment plan with your creditors and have either a neutral or positive impact on your credit score. Working with a credit counseling agency, you can typically negotiate lower interest rates, have fees waived, and consolidate your debts into a single, manageable monthly payment. This allows you to pay off your debt systematically while learning better financial habits. While it requires commitment, it offers a balanced approach, minimizing credit damage while providing the tools for long-term financial stability.

Debt management is a type of debt consolidation because it combines multiple unsecured debts into one low monthly payment. However, a debt management program is not the same as a debt consolidation loan. You enroll in a debt management program through a credit counseling agency, rather than taking out a loan. Learn more about debt management.

In general, debt consolidation applies to your unsecured debts. You can generally consolidate credit card debts, although this can be dependent on the amount of debt you have and your payment history. In some cases you can consolidate payday loans and cash advances, but it is highly specific to which lender you used. In some cases, you can also consolidate medical bills if they are less than 1 year old. To find out exactly which of your debts you can consolidate, take our Free Debt Analysis and a credit counselor will contact you for a personal debt consultation.

There is no set maximum amount of credit card debt you can consolidate. In some cases, clients have even consolidated more than $75,000 in debt, but it all depends on what kinds of debts you have and your own unique financial circumstances. Call (844) 276-1544 to allow a certified credit counselor to assess your debts and help weigh your options.

Most experts agree using a home equity loan to pay off credit cards is risky. As unsecured debt you have a number of options available that allow you to pay off your credit cards. However, a home equity loan is a secured debt. You can risk foreclosure and losing your home if you don’t make your payments. Always speak with a credit professional and consider all your options before taking out a home equity loan to pay off credit card debt

This depends largely on which option you choose and what you do. Debt settlement and bankruptcy produce penalties on your credit report that can remain up to 10 years. Your credit rating is not penalized for enrolling in a debt management program and in some cases, successful completion with all payments made on time may contribute to improving your credit rating. The effects of debt consolidation loans will vary depending on how diligent you are in paying back the loan. Always consult with a professional before choosing any debt relief option. Call us at (844) 276-1544 for a free consultation.

While the government offers debt relief for specific debts like federal student loans, it doesn’t directly help pay off everyday credit card debt or personal loans. Instead, it protects consumers through agencies like the CFPB and provides legal options such as bankruptcy.

Getting your credit back on track after credit card debt takes time, but it is possible. Begin by reviewing your credit reports for errors and correcting them. Next, develop a plan to pay down your debts, focusing on either the highest interest rates or the smallest balances. Keep your credit card balances low to improve your credit utilization, and ensure all payments are made on time. Rebuilding credit takes time, but consistent responsible financial habits will lead to positive results.

If you’ve fallen behind in your payments, call us immediately at (844) 276-1544 so we can review your options together. You do have rights! The Fair Debt Collection Practices Act (FDCPA) protects your rights when it comes to when and how a creditor or collection agency can contact you. Find out more about your rights under the FDCPA.

No, you can’t go to jail for credit card debt. Debt is considered a civil matter, meaning the credit card company can take legal steps to get their money back, such as suing you or garnishing your wages. However, they can’t send you to jail for just owing money. If a collection agency is threatening you with jail, they are the ones breaking the law. If this happens, document the threat and file a complaint with the CFPB and your state’s attorney general.