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Whether it’s $1,000 or $20,000, being in debt isn’t a situation anyone truly wants to face.
If you find yourself stuck, there are ways to get yourself out of that financial black hole and pay off that $20,000 in credit card debt — or however much you may owe.
Struggling with credit card debt?
Credit Summit may be able to help.
How to Pay Off Large Amounts of Credit Card Debt
Have you maxed out your credit cards to the point where you can’t charge anymore? Do you have other debts piling up, like student loans and/or medical bills?
The average household in the U.S. has credit card debt totaling between $5,525 and $8,701. But even if your total is higher than average, you can still pay it off and ditch that monthly stress.
Remember that such debts — especially on a credit card — can be very expensive as credit card interest rates are high and add up quickly. The primary tactic to stay out of debt is to make sure to get your credit card payments under control before your debt is out of control.
Choose a Strategy
There are a few ways to address your debt on your own, which means there are few to no out-of-pocket costs involved.
Negotiate with Your Credit Card Companies and Other Creditors
This is the cheapest way to address your debt. Like you, credit card issuers want to get paid the money they are owed and don’t necessarily want to chalk you up to collection.
Some lenders will work with you on repayment plans and reduce the amount you owe just to ensure they get some form of payment. If you can start the process by calling on these lenders to see if you can work something out that benefits both sides.
There are experts that can help. If you’re interested in hiring a company to assist you, fill out our contact form by clicking here.
Apply for a Balance Transfer Credit Card
If your credit is good and you have a solid FICO score, applying for a balance transfer credit card might be a good option.
Start by applying for a new credit card with an introductory APR offer of 0%, you may already have one offering in your mailbox.
Next, transfer those high-interest debts to the new card and start reaping the low APR. Yes, you will most likely have to pay a balance transfer fee, but if you can pay off your new card within the promotional period — typically 12 to 18 months — you should be able to save some money in interest and more than you normally would if you didn’t opt to do the transfer.
For example, $20,000 in credit card debt at an 18% APR paid over 18 months would cost $1276 a month and you’d pay almost $3,000 in interest.
That same $20,000 on a card with a 0% introductory rate will cost $1,125 a month to pay off the entire balance during the introductory period, if that card has a transfer fee capped at $300. That would result in a savings of about $2,700.
You don’t have to pay off the entire balance during the introductory period. But keep in mind when the intro period is up the interest rate will also go up. The goal is to get your balance lower before the promo period expires.
Top Credit Cards with Introductory Rates
- Wells Fargo Reflect: This card offers no interest for 21 months and charges a balance transfer fee of 3% or $5, whichever is higher. There is no annual fee, but to obtain the full 21 months you must make on-time payments. If you make a late payment, the term is reduced to 18 months.
- Bank Americard: This card charges no interest for 18 months and there is no annual fee. The balance transfer fee is 3% or $10, whichever is higher. Paying late will not automatically increase your interest rate or shorten your introductory rate term.
- Citi Custom Cash Card: There is no interest for 15 months and a balance transfer fee of $5 or 5%, whichever is higher. There is no annual fee. As a bonus, after you’ve paid off your balance, any charges you make to this card will earn Thank You Points that can be redeemed for cash.
Debt Snowball Method
The debt snowball method, which was popularized by financial guru Dave Ramsey as part of his Seven Baby Steps to get out of debt, simply means paying off your debts such as credit cards, student loans, etc., with the smallest balance first and then working your way toward larger debts.
Debt Avalanche Method
Think of the debt avalanche method is the opposite of the snowball method — start by paying off debts with the highest interest rates first, working backward from highest to lowest.
Whichever method you choose, note you will still need to continue to make all minimum monthly payments on your other debts.
Debt Consolidation Loan or Personal Loan
When thinking about applying for a debt consolidation loan or personal loan, the lower interest rate and one monthly payment will help ease your budget problems and may even give you extra money for daily expenses.
This could be beneficial if you qualify for a lower interest rate than what you’re paying your credit card company. If you have bad credit, some personal loans could charge a higher interest rate than what you’re currently paying.
You can check with your bank or credit union to see if you’ll qualify for better rates.
Plus, new credit can be dicey. Ask yourself if you’re disciplined enough to stop using your credit cards once you’ve paid them off with the debt consolidation loan. It won’t help your underlying issues if you consolidate your debt, then continue to rack up balances on your credit cards.
401(k) Loan or Borrow from a Roth IRA
If you have a 401(k) retirement plan through your job or past employment, you may be able to borrow from the balance to pay off your credit card debts. But not all employer plans will let you do this, so you’ll need to ask.
If your employer allows, you can borrow up to $50,000 or half your vested account balance, whichever is less. You have five years to repay the money and most plans charge interest on the advance, which is usually the prime rate plus 1%.
Consider withdrawing (not borrowing) funds from an IRA or Roth IRA to pay off balances if you don’t have a 401(k).
There are various disadvantages to withdrawing from an IRA or Roth IRA. For example, if you are younger than 59½, you will pay a penalty. You may only withdraw from the part of your Roth IRA that you deposited into the account.
Whether you use a 401(k) loan or borrow from an IRA, it’s important to remember that you will be hurting your retirement savings. However, if it solves your problem and leaves you in a better position to save in the future, it might be worth it.
Some other points:
- Withdrawing money early from a 401(k) or IRA will result in an additional 10% penalty, though there are a few exceptions to this rule.
- You can withdraw money early from an IRA without penalty, but only for a few specific reasons like placing a down payment on a first home or paying for college tuition.
- Borrowing from your retirement accounts is essentially like taking a loan from yourself.
- People over 59½ who’ve held their accounts for at least five years can withdraw contributions and earnings with no tax or penalty.
- Special exceptions apply for those who are under 59½ or don’t meet the five-year rule if they make withdrawals for a first-time home purchase, college expenses, or other situations.
- There are no required minimum distributions for Roth IRAs during your lifetime.
While filing for bankruptcy is an option, consider it a last resort. Filing for Chapter 7 or Chapter 13 doesn’t always set you free from student loan debt, nor will it help much if you owe back taxes, child support or alimony. Plus, you’ll be at the mercy of a bankruptcy trustee, who will control your finances for a minimum of three to six months in the case of Chapter 7 or up to five years in a Chapter 13 filing. Set up a free consultation with a bankruptcy attorney to review your options.
What actually happens when you file for bankruptcy? To find out, watch this video:
Hire a Professional to Help
You’ll have to pay for these professional debt management programs, but they’re likely to lead to more savings than you could negotiate on your own.
Debt Management Plan
Another way to help get out of credit card debt is to get yourself involved in a Debt Management Plan, or DMP.
This is a program created for you by a credit counselor to lower the interest rate on credit card debt and create an affordable monthly payment that reduces the debt in three to five years.
Debt management plans are usually offered by nonprofit credit counseling agencies, though there is a small monthly fee involved, usually ranging from $25 to $50 per month. A certified credit counselor will analyze your personal financial situation and develop and implement a plan just for you. The advice is usually free. You won’t need to pay until you agree to a plan.
Debt settlement companies negotiate settlements with a debtor’s unsecured creditors. Creditors agree to forgive a large part of the debt, maybe around half, though results can vary. When the settlements are finalized, make sure you get the terms in writing. Not all debt settlement companies are reputable.
Considering debt settlement? Check out our top recommendations. If you have payday loan debt, specifically, click here instead.
Debt Relief Options for Homeowners
Your home’s equity provides some options that aren’t available to other borrowers. You’ll need to be careful, though. You don’t want to do anything that leave you at risk of foreclosure.
Refinance Your Mortgage
Refinancing your mortgage may allow you to use some of your home’s equity to pay off your debt, and if you can qualify for a lower mortgage interest rate you may also save some money. Use caution, though. Fees are high, and interest rates are rising. It may not make sense for you to refinance your entire home loan at a higher interest rate. Instead, you may want to consider the next option.
Home Equity Loan or Home Equity Line of Credit (HELOC)
Using a home equity loan or line of credit to consolidate credit card debt may lower your monthly interest payments, but it can be a tricky option.
Home equity loans and HELOCs let you borrow against what you’ve paid toward your home. However, lenders will only allow you to borrow a portion of the equity. What you borrow can either be a lump sum (a home equity loan) or a line of credit (HELOC) that you can use for whatever you need for a fixed number of years.
To consolidate, you can use the equity loan proceeds to pay off credit cards. With one of these loans, you will end up making two monthly payments: your usual mortgage payment and the payment toward the home loan.
Take Control of Your Financial Situation
Finding yourself in debt can be daunting, and while becoming debt-free might seem impossible, don’t admit defeat quite yet.
You will, most importantly, need to take control of your financial situation, and if you owe $20,000 in debt at an average interest rate of 18%, you’d need to pay $1,276 per month over 48 months to pay it all off.
And think of this: You’d pay $3,000 in interest alone, and that’s if you don’t charge anything else on your credit cards during this time.
- Assess your debt: Either assess your debt or seek out a professional or banking or financial expert to offer tips before starting any plan. Here are other ways to try to take control of your financial situation before it gets worse.
- Track your income and spending: Sign up for a budget app and start watching and learning where your money is going and what you’re spending it on. Keep track of all your monthly payments and expenditures and compare them to your income. Add it all up, including student loans, car loans, credit card debt, monthly bills, groceries, etc. Also, keep track of your total interest charges and see how much those are costing you at the end of each month, or you could be in for a rude awakening.
- Find a side hustle: While you may not want to, a second or even third job can help with extra income to tackle your debt. See if you can be a tutor to someone or do freelance or independent gigs if possible in something you excel at. You could also try finding a roommate to help you share expenses of your home or apartment to lift the burden and split bills i.e., utilities.
- Downsize: You may not want to do this either, but there’s always the opportunity to move to a cheaper residence, get a less expensive car and pay off your auto loan, cancel subscriptions, and do anything else you can do to reduce your monthly expenses.
- Automate payments: By automating payments, you could save money on late fees and help get a better grip on your finances even if you only pay the minimum.
- Make extra payments: Try to pay as much as you can to bring down the debt each month; ask family members or friends for a loan.
Review Your Credit Report and Learn Your Credit Score
It’s not surprising those with poor or bad credit pay the highest interest rates, so check your credit reports regularly at annualcreditreport.com. Fix any errors you that could be dragging down your credit score, which you should also check regularly. There are plenty of ways to access an estimate of your credit score for free. If your credit score is less than ideal, take some proactive steps to boost it. There are services that even help you use your monthly subscription payments to build credit.
Credit Score Ranges
- Poor credit: 300–600
- Fair credit: 601–660
- Good credit: 661–780
- Excellent credit: 781–850
The Bottom Line
Whether your credit card debt is $1,000, or $20,000 or even higher, hope is not lost. There are ways to address the issue. Be diligent, be aware, review your credit and get some professional advice. You can start working toward paying off $20,000 in credit card debt by developing a battle plan that includes using consolidation options, cutting back in other areas of your budget, earning more money, and maybe even moving to a smaller place.
There are specific eligibility requirements you must meet to qualify for loan forgiveness or receive help with repayment. Loan forgiveness means you don’t have to pay back some or all of your loan.
On average, Americans carry $5,315 in credit card debt.
Understand your monthly living expenses and set a goal for how many months you want to be able to cover with your emergency fund. Then, decide what portion of your savings should go toward your emergency fund or savings account, and what you want to invest elsewhere. Don’t use your emergency fund for non-emergencies.