4 ways to pay off high-interest card debt


Options include debt settlement, hardship programs and balance transfer

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.

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Dear Credit Guy
I have a high-interest credit card and would like to pay it off, but can I ask them if they could reduce the amount?

I’ve paid for seven years and they’ve only once reduced the interest. Thank you – Karen


Dear Karen,
Paying off your high-interest credit card sounds like a great idea and one I support wholeheartedly.  

First, if all you’re trying to do is to reduce the APR on your card and your account is in good standing, just ask. Chances are your request will be approved.

If your card issuer won’t lower your interest rate, you have other options. Here are four ways you can erase your high-interest credit card debt:

1. Debt settlement

I’m not entirely sure what you mean by asking your creditor to “reduce the amount.”

If you want your creditor to reduce your principal balance rather than just your interest rate, we are talking about an option known as debt settlement.

With debt settlement, you offer to pay your creditor less than you owe. Generally speaking, this works only if you have the means to give the creditor a lump sum payment.

You can negotiate by yourself or through a debt settlement company.

Video: The basics of debt settlement

There are pros and cons to debt settlement. Coming up with a large sum all at once usually falls in the “cons” category, as does the damage a debt settlement can do to your credit score.

You will want to carefully weigh debt settlement before you choose to go this route.

2. Hardship program

Your card issuer may have an internal hardship program or other debt-reduction solution for which you may qualify. 

Note, though, that hardship programs usually are for a limited time period and not really set up to help you pay off your credit card.

Hardship plans are designed for the consumer who is going through a temporary hardship.

If your card issuer doesn’t offer an internal plan that will help you to pay off your debt or you don’t qualify for the plan, chances are good your issuer might refer you to a credit counseling agency to take advantage of a debt management plan.

3. Debt management plan

A debt management plan is an agreement that credit counseling agencies have worked out with most major creditors to reduce interest rates and stop any over-the-limit and late payment fees which may be accruing on a credit card account.

Here are some of the pluses and minuses of debt management plans:

  • Debt-free in five years or less: Debt management programs are designed to help you to pay off your credit card debt in five years or sooner.
  • You will have to put your credit cards on ice: Your account will be closed and you will be discouraged from opening any new credit cards while you are on the plan.
  • Your credit score likely will dip: Closing your account may cause your credit score to drop somewhat in the beginning, especially if you have available credit left on the card. However, if the card is close to its limit, the damage has already been done to your credit score and closing the account will not have much effect.
  • In time, your credit score will rebound: Paying your debt off systematically through a DMP will help your cedit score to rebound over time. 
  • Your credit counseling agency is your middleman: You will be making your payments through the credit counseling agency, but you will continue to receive statements from your creditor until the account is paid in full. For this reason, and others, you will want to work with a legitimate nonprofit credit counseling agency.

For further tips and advice, see “8 steps to picking a credit counselor.”

4. Balance transfer

A balance transfer from your high-interest card to a new card with a 0-percent introductory period is another option for you, if your credit is in good standing.

Some balance transfer cards currently offer 0-percent interest promotions of up to 21 months and competitive APRs afterward, depending on your credit.

If you opt to transfer your balance, note that transferring a balance often includes a balance transfer fee – typically 3 percent of the amount transferred.

Once you have transferred the balance to your new card, you can keep your old card open, which will help reduce your overall credit utillization – the amount you have borrowed compared to your credit limits.

However, if that old card charges an annual fee, you might want to consider canceling it. Here is further advice on how to cancel a card without hurting your score.

As you can see, you have at least four options to pay off a high-interest credit card. Pick the option that best fits your situation.

Take care of your credit!

See related: Save money and your score with a DIY debt management plan, 9 things you should know about balance transfers



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