Options When You Can't Pay Off Credit Card Debt

Audrey M. Jones
Blurred credit cards

Although most Americans have credit card debt, some find that they are unable to pay off that debt. Fortunately, if you are unable to pay the debt that you owe on your credit cards you have several options.

Options for Paying Credit Card Debt

There are three main options to assist you with paying off your credit card debt when you find that you are unable to do so by yourself: Consumer Credit Counseling, declaring bankruptcy or radical budgeting. Each option has drawbacks and benefits, and may be combined to best suit your needs.

Consumer Credit Counseling

Consumer Credit Counseling (CCC) is a service in which your credit card debt is combined into one, lump amount of debt, which you pay off simultaneously through a single payment. For example, if you owe $5,000 on one card, $3,000 on another and $1,500 on another, the CCC service will negotiate a way to unite the amount owed on all three cards into a single debt for $9,500. Each month, you would pay a set amount towards that debt, which the service will also negotiate. For example, if that amount is $200, the entire amount of your payment goes toward your aggregate $9,500 in debt.

Most CCC companies are non-profit, but some are not. Usually, the service negotiates the amount of your debt, reducing it, or negotiates a lower interest rate for you to pay on your debt. It may be possible to freeze the amount of your debt and not have it accrue interest while you pay.

CCC allows you to pay off your debt, most times for less than you owe. However, CCC services must, and credit cards can, report your agreement to the credit bureaus. Because of this, it can also result in your credit score falling. Nick Jacobs of the National Foundation for Credit Counseling explains that CCC allows you to pay off your debt while saving for the future, a bonus many consumers overlook.

CCC Information

Declaring Bankruptcy

Bankruptcy can be extremely complicated. Bankruptcy is a federal legal proceeding in which you tell the court that you are unable to pay for your debt, and the court assists you with negotiating your estate and giving some of your creditors a portion of the money they are owed. It's not fun. Also, you will usually need to hire a lawyer to help you.

In a personal bankruptcy, the court usually orders you to pay a sum of money each month for a set number of years. The court is responsible for distributing the amount of money each of your creditors is entitled to. You are usually required to pay this amount for seven years.

Declaring bankruptcy freezes your debt where it is, with a few exceptions (such as student loans). It allows you to walk away from overwhelming financial obligations, paying a portion or none of them, and in seven years or so forget that the whole thing happened. With bankruptcy you'll likely see your credit score take a dive faster that you can blink an eye.

Experts are split on the advisability of declaring bankruptcy. Although, most, including John Ventura and Nabil Captan, agree that a necessary step after doing so is to rebuild your credit.

Bankruptcy Information

Radical Budgeting

Some people choose the alternative of establishing a severe budget, dedicating a large amount of monthly income to paying off debt, sticking to the budget no matter what happens and eventually emerge without debt. You pay your debt according to the lending contract you signed, which means that you pay the full amount of your balance, interest and any fees you owe.

This option allows you to fulfill your debt obligations, giving you a sense of being responsible and having saved face. However, it is extremely difficult to implement and abide by successfully. In fact, its success mainly depends on whether you earn enough to live off and pay off your debt at the same time. Nevertheless, it is possible, particularly for those people who have recently increased their income. It also does not affect your credit and, in fact, will result in an increase of your credit score because of your being so responsible.

According to Lisa Drake, a small business consultant and a certified public accountant, debt-free living is difficult, but not impossible. The key is to being realistic about your budget, what you can spend and refusing to incur any debt which is not considered good debt. Establishing a budget, says debt expert Andrew Housser, is possible, but requires diligence and completion of a five step process, which includes credit counseling.

Radical Budgeting Information

Getting Rid of Your Credit Card Debt

Don't despair if you've realized that you can't pay off your credit card debt. You're not alone in your worry. Review whether credit counseling, declaring bankruptcy or radical budgeting is right for you and can help you meet your financial obligations.

Options When You Can't Pay Off Credit Card Debt