How to Pay Off $20,000 in Credit Card Debt

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How do you turn $20,000 into more than $42,000?

If you’re talking about credit card debt, all you need to do is make minimum monthly payments. At a minimum payment of $200 a month at current interest rates, it will end up costing you $22,644.95 (in addition to the original $20,000!) to pay off all the debt, and it’ll take you about 10 years to do it.

And that is If you don’t use the card again!

We’re not going out on a limb here by suggesting that is too much credit card debt.

So how do you pay off $20,000 in credit card debt before interest rates devour your bank account?

It may sound hard, but all you need is determination and a plan. Here are the best ways to escape a $20,000 credit card black hole. Look them over and find an overall strategy that works for you.

Benefits of Paying Off Debt

Let’s start by accentuating the positive. Visualize a future without credit card debt. Those wish-list things you’ve always wanted for you and your family? A new home? New car? Even a new job? A dream vacation? College tuition for the kids? A comfortable retirement?

When you aren’t saddled with credit card debt, those goals are within reach.

A mortgage on a new house might finally be attainable, for example, when your debt-to-income (DTI) ratio is under control. Most lenders want your DTI ratio at about 43% or less before they’ll approve a mortgage for you. Ridding yourself of a big ol’ hairy credit card balance, along with any other outstanding monthly loan payments you owe, can help keep you well under that 43% dividing line.

Too, once you’re out of debt, you won’t run into problems with your credit score the next time you’re applying for a job. Employers in industries such as law enforcement, financial services, the military and others often make a check of your credit history a standard part of the application process. Why? Because they figure the more debt you carry, the more susceptible you’ll be to a bribe.

That won’t be an issue in the fabulous future career you’re imagining right now.

And don’t underestimate the health benefits of living debt-free. It’s true: Debt causes stress. According to a 2020 CreditWise survey, owing a lot of money is the single biggest contributor to the kind of debilitating anxiety that can negatively affect your well-being. It has been connected to high blood pressure, migraines, weakened immune systems and heart arrhythmia, among other physical symptoms.

So as long as you’re visualizing a future without debt, envision yourself feeling better, too.

Now, let’s figure out how to get you into that future.

Getting Started Paying Off Debt

You could try to get motivated by asking what $20,000 can buy. Among other things, it can get you close to a 45-night cruise to Antarctica and the Amazon. Or something like 2,002 months of Netflix Basic. But remember: Being a shopaholic is probably what got you into this fix in the first place.

It won’t help your stress level to hear this, but you are hardly alone. U.S. residents owed $841 billion in credit card balances in the first three months of 2022, and according to an early August report from the Federal Reserve Bank of New York, they tacked on another $46 billion just in the second quarter (April through June). While that’s lower than what they owed before the coronavirus outbreak, it’s still a staggering number.

Overall, household debt in the second quarter of 2022 was up 2%, or $312 billion, compared to the first quarter. If you’re contributing to those numbers, the first thing you might need is an attitude adjustment.

Get Your Mind Right

OK, we’ve focused on the good things waiting for you on the other side of your debt. Now it’s time for a reality check. Right along with accentuating the positive is eliminating the negative. But first, you need to know what those negatives are. You need to know what will happen if you just ignore that $20,000 of credit card debt.

  • Late fees will happen.
  • Accumulating interest at an increased penalty rate will happen.
  • Closure of your account will happen (though you’ll still have to pay the bill).
  • Eventually, the credit bureaus will be notified, which means a plummeting credit score will happen.
  • Keep ignoring the payments, and debt collectors will happen. They will start calling – or worse, ringing your doorbell.
  • Lawsuits? They can happen, too. Keep it up, and your wages, even your bank account, can be garnished.

Got it? It’s ugly.

So, take ownership of your situation. You might have been laid off, or your ex-spouse could have cleaned you out in a divorce, but Visa, Mastercard, American Express and Discover still want to get paid.

The best revenge is to pay off your cards ASAP. That’d tell them where they can stick that $22,644.95 in interest.

Put Your Credit Cards in a Deep Freeze

Credit cards are your sworn enemy. Keep one for emergencies, but do not put another discretionary dime on it. That dime will cost you much more than 10 cents. As of July 2022, The average credit card interest rate in early August 2022 was 17.92%, an all-time record high. It may not seem like a lot at face value, but the way the interest is charged, what you owe can go up fast. Take a look at how a simple percentage point in payment can affect what you pay overall:

If you owe $20,000 and make a 3% payment a month ($600) it would take 39 months to pay that off and you’d accrue $6,586.62 in interest.

If your minimum payment is 2%, or $400, you’d rack up $10,220.26 in interest.

Paying $200, or 1% (the standard minimum on some cards), means you would accumulate the $22,644.95 in interest we mentioned up top, and it would take you 118 months to pay it off. You’d pay more than double your starting balance and need nearly 10 years to do it.

You don’t even want to know what a 29% interest rate would cost at those minimum payments.

Review Your Credit Report

Do it now. Do it later, too. Do it at least once a year, in fact. (It’s free once every 12 months!) But it’s vital to review your credit report now as you begin the process of digging yourself out from under that credit card debt, if for no other reason than you want to make sure it’s accurate. Part of what you’ll find is information on your credit accounts, your credit limits, your current balances, and your payment histories.

See anything amiss? Now is the time to address it.

Then, by checking it regularly, you’ll be able to see the progress you’re making on the way to eliminating your debt. You want to know how to improve your credit score? Your credit reports will give you a regular check-in on its status. That’s a big part of taking ownership of your finances. There are options to pay off debt with poor credit, but you choices are more appealing if you are able to improve your credit score.

There are three major credit reporting bureaus (Equifax, TransUnion and Experian). You only need one website, though, to request your free credit report:

List Everything You Owe

If this sounds like the beginnings of a budget … well, it is. (We’ll dive a little deeper into the budget process in a bit.) Once you have all of your outstanding debts in front of you and in one place, you can calculate the size of the overall payment you’ll need to make to stay current on your debts and start the process of whittling them down.

» Learn More: How to Find Out All My Debts

That’s another reason to review your credit report. It’ll list the amount you owe on every one of your accounts, including some you might have overlooked.

At any rate, make sure your list includes what you owe on your auto loan, your outstanding student loans, your mortgage, other personal loans you’ve taken out, and (of course) your credit card debt. Make note of the interest rate and monthly payment due for each debt. Add those monthly payments together and … voila! You know what you’re up against.

It might be scary. But now you understand the challenge. You’re taking ownership of it.

How to Pay Off Debt

A great place to start is nonprofit credit counseling. Credit counselors can take a look at your financial situation during a free 20-40 minute session and recommend a debt relief solution that suits you. That could be a debt management plan or any of the other strategies on this nine-point list of options to help you get your head above water.

1. Debt Management Plan

Under a debt management plan, you enroll in a structured program offered by a nonprofit credit counseling agency like InCharge Debt Solutions. Your payments are consolidated, and creditors agree to reduce interest rates to an affordable rate. Instead of making a bunch of payments each month for your credit card problem, you make only one to the agency. The lower interest rate saves you a lot of money. Credit counselors from the agency also help you set up a budget and will guide you through the program, which typically takes 3-5 years to complete and comes with a monthly fee that is included in your monthly payment.

Does it work? It does – if you work at it.

2. D-I-Y Debt Snowball/Avalanche

There are two popular DIY debt plan approaches to chipping away at that $20,000 hole you’re in. You can pay off the smallest credit card debt first, which might give you more motivation to pay the next-largest, then the next and so on. That’s the snowball method.

The avalanche method is to pay off the credit card with the highest interest rate first, then work down. From a purely financial standpoint, the debt avalanche makes more sense, but some people like the momentum aspect of the snowball method.

3. Debt Consolidation Loans

Ideally, you’d have a rich uncle or a friend who’d loan you $20,000 interest-free to pay your cards off. Since that’s not likely, you could apply for a debt consolidation loan through a bank, credit union or online lender. The interest rate would vary depending on your circumstances, but it would almost certainly be lower than what your credit cards are costing you. If you own a house, you might consider getting a home equity loan or line of credit. Just remember, your house would become your collateral. If you default, you could lose the roof over your head.

4. Debt Settlement

This is an option if your situation is dire and credit card companies are convinced they’ll never get the full amount you owe. You negotiate and agree to make a one-time payment for a percentage of what you owe, optimistically somewhere close to 50%. You can hire a company to negotiate for you, but beware of scam artists who charge exorbitant fees. The upside of debt settlement is that you could get half of your original balance forgiven. The downside is a debt settlement stays on your credit report for seven years and will wreck your credit score. It might end up costing you more in the long run.

5. Reduce Your Interest Rates

This is a no-brainer, right? If you can do this, your monthly payments will be lower and you’ll have more money at your disposal for other things you need. So, the question: How do I do it? How do I lower my credit card interest rate?

For openers, you can just ask. (Speaking of no-brainers!) Call your credit card company and request a lower rate. Sometimes, the company provides a lower rate than the one they’ve given you. A little research into that possibility might be helpful, of course, before you make the call.

If you have a handle on all your accounts and what interest rate you’re paying on each of them, you might be able to move debts with a higher rate into a credit line with a lower rate. The simplest way to do that is to transfer a credit card balance with a high interest rate to another card with a lower rate. In fact, you can consolidate all your credit card debt into one account that will lower the interest rate and combine all your monthly payments into one.

A nonprofit credit counseling agency such as InCharge Debt Solutions can help with that sort of debt consolidation.

6. Create a Budget

As promised, here’s that (slightly) deeper dive into budgeting. Once you have a budget and have learned to stick to it, it will keep you from spending more than you make. (That’s how you dug yourself into this $20,000 hole, right?) A budget can start you on the way to erasing that credit card debt. It can also get you to the big-ticket purchases you want to make such as a new car or a new home, as well as guide you into a more comfortable retirement further down the road.

Start by compiling a list of everything you owe, as we mentioned earlier, along with all of your other monthly expenses. Then make another list that itemizes every source of your take-home income and how much each one contributes on a monthly basis. Match those two lists up and see where you stand. Are you taking in more than you spend? Way to go!

But if you’re spending more than you’re making, well, it’s decision time. Because you have that list of monthly expenses in front of you, it’ll be easier to choose where you can cut back.

Of course, your own budgeting process might not be as simple as we’ve just made it sound. But you can find more detailed help here: How to make a budget. And here’s a handy-dandy budget calculator to help you with the math!

7. Pay Your Bills on Time

Your creditors like it when you do this. When you don’t pay your bills on time, they aren’t happy with you and they’ll find ways to let you know it. Late fees. Penalty rates. All that stuff we mentioned earlier. So, make a point of remembering (and acting on your memory!) when your payments are due every month. No need to make matters worse.

You can be smart about how you do it, too. If you’ve got a few extra dollars burning a hole in your pocket, add them to the credit card payment that carries the highest interest rate. Or maybe fast-track the elimination of one of your debts by putting a little extra toward the account with the smallest balance.

If you just can’t make the payments on time, then it might be time to investigate a debt management plan or a debt consolidation loan.

8. Borrow from Your Retirement Plan

Sure, it can be done, but it’s low on the list of good alternatives. Raiding your IRA or withdrawing money from your 401(k) is not a prime option, since there is a 10% penalty if you withdraw money before age 59½. Plus, you’ll have to pay income tax on any of the money you take out of a traditional IRA. The rules for a Roth IRA are a little different, but you could still be subject to taxes if you withdraw money early.

Between the high fee and taxes on the money withdrawn, you’ll likely pay more for the credit card debt you’re trying to eliminate. Throw in the interest accumulation lost, and you’ve got less money for your retirement.

9. Bankruptcy

Bankruptcy is the last of the last resorts. Under Chapter 7 bankruptcy, you give up just about everything you own to pay off lenders. You may keep “exempt” items that you truly need like your house and car, but gone is the wide-screen TV, jewelry, artwork and anything else of value deemed non-essential that can be sold to pay off creditors. Your debt’s gone, but so is most of your stuff.

The alternative is to file bankruptcy under Chapter 13 bankruptcy. You enter a court-supervised repayment plan that lasts three to five years. Either approach will wreck your credit score and make future loans difficult to get.

A Chapter 13 stays on your credit report for seven years. A Chapter 7 stays for 10 years.

Recovering from Debt

Remember way back at the beginning when we talked about how to double the depth of a financial hole? We said making the minimum monthly payments on a $20,000 credit card balance could cost you an extra $22,000 and take nearly 10 years to get free and clear. We also said this, which is the key part:  That’s if you don’t make any more purchases with the credit card.

In other words, recovering from old debt involves avoiding new debt. The process requires self-control, determination, diligence, the ability to resist impulse purchases. (Just say no to those 2,002 months of Netflix Basic!) You can’t be a shopaholic and expect to get out of credit card debt, so put the plastic away.

Even if you’re taking a pro-active step such as transferring your existing balance to a different card with a lower interest rate, keep that new card under lock and key if at all possible. Or at least make sure you’ll have the wherewithal at the end of every month to pay for what you’ve charged.

And remember that taking a personal loan to pay off a credit card debt comes with its own baggage: It’s new debt, too. You have to pay it back.

Hey, nobody said it was going to be easy.

Getting Help with Debt

If you have $20,000 in credit card debt, you can relate. Whatever strategies you use to pay that off, it can be done. And you don’t have to do it alone. A quick reach-out to a nonprofit credit counselor for debt help can guide you to the road to solvency.

When you call InCharge Debt Solutions, a credit counselor will ask some simple questions about your income and expenses and start a conversation about the best ways to manage the credit repair work you need. If the best option is a debt management program, an InCharge counselor can suggest a plan that could reduce the interest rate on your credit card debt to around 8%. (Remember, the average credit card interest rate in early August 2022 was 17.92%.)

It’s important to note that although a debt management program asks you to make monthly payments, it isn’t a loan. You can opt out of the program at any time. But if you stick with it and make those monthly payments on time, you can eliminate your credit card debt in three-to-five years.

Call us and get the help you need.

And when it’s all said and done, maybe you can treat yourself to a nice cruise to Antarctica. The best part? You’ll be smart enough not to put it on a stupid credit card.

About The Author

Michael Knisley

Michael Knisley writes about managing your personal finances for InCharge Debt Solutions. He was an assistant professor on the faculty at the prestigious University of Missouri School of Journalism and has more than 40 years of experience editing and writing about business, sports and the spectrum of issues affecting consumers and fans. During his career, Michael has won awards from the New York Press Club, the Online News Association, the Military Reporters and Editors Association, the Associated Press Sports Editors and the Sports Emmys.


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