Running up $50,000 in credit card debt is not impossible. Millions of Americans do it every year.
Experian, one of the three major credit reporting bureaus in the U.S., says that 1.6 million American consumers had credit card debt of more than $50,000 in 2016.
Paying that bill off? Well, that is not impossible either, though it is considerably less fun.
Accumulating that much credit card debt almost always starts innocently and ends badly. You can dig a decently deep hole of debt by eating out at restaurants three or four nights a week, picking up bar tabs a few times, maybe buying new furniture or appliances, taking on an expensive hobby like golf or skydiving or just going on vacation. All you’ve got to do is show them the credit card.
Unfortunately, the spending creeps up on you and, before you know it, you’re one golf vacation, two kitchen appliances and three nights out on the town in over your head and the bottom line says you owe more than $50,000.
The Bureau of Labor Statistics said consumer spending went up in every household component in 2015, including categories primarily serviced with credit cards, like household furniture and appliances (up 15%); eating out (up 7.9%); entertainment (up 4.2%); and clothing (up 3.4%).
But the real key to growing debt to unmanageable status is to take on multiple credit cards and make only minimum payments on each one.
More than 167 million American adults have at least one credit card and the average consumer with a credit card carries four of them. The average credit limit for cardholders at the start of 2017 was $8,071, according to Experian.
You don’t have to be too far above average with the number of credit cards you carry and the max amount you charge on them to get to $50,000.
So, the question remains: How do I get out?
The average U.S. household carrying credit card debt owed $16,748 in 2017 and paid more than $1,300 a year in credit card interest.
Those are frightening numbers to the average Joe, but not to the million-plus consumers with $50,000 or more in credit card debt. They wish they were average! Or, at least wish someone would help them shrink their debt to the average level.
There are plenty of angles to attack the matter, but most of the choices fall into three categories:
The first two require a great deal of thought, discipline and effort. They also require time. Depending on your resources, it takes 3-5 years to put that much credit card debt to bed.
The final option – bankruptcy – is a last-ditch effort that should be considered only when attempts at the first two have not produced the desired result.
No matter which choice you make to resolve your credit card debt, there are some steps you can take to ensure a more positive outcome.
It goes without saying that putting the credit card away, except for dire emergencies, and start paying for all purchases with cash. This is the first step toward regaining control of your finances. By paying with cash, instead of a credit card, you begin to understand just how much money you’re spending every time you reach into your pocket.
It hurts, and it should. It’s a lesson learned and should make you much more disciplined about when and where you spend money.
Beyond that, here are five steps that will help you conquer $50,000 of credit card debt.
Get Your Facts Straight – Do you really know how much money you spend every month and what you get for all that money? A 2013 Gallup poll showed that only one in three American households use a detailed written budget. There are plenty of phone apps that will help you track spending as you do it. Take advantage of one and discover why a budget is a great bailout.
Even if you only adopt bits and pieces of the five suggestions, you will have enough ammo to shoot down your debt problems.
The next question then is: What method should you choose?
Debt management plans might be the simplest answer to huge credit card debt because nonprofit credit counseling agencies like InCharge help with the most difficult parts: reducing interest payments on debt and setting up a budget you can live with.
InCharge’s credit counselors work with credit card companies to find an interest rate and monthly payment you can afford. The average InCharge client has their interest rate reduced to somewhere around 8%, though some go even lower.
To see how dramatic a difference that makes, look at the difference in monthly payments and interest charged on a $50,000 credit card debt paying the national average of 15.9% and one paying a rate of 8% secured through an InCharge credit counselor over a five-year period.
Balance: $50,000 $50,000
Interest rate: 15.9% 8.0%
Monthly payment: $1,213 $1,014
Payout period: 5 years 5 years
Total interest paid: $23,993 $10,840
Total amount paid: $73,993 $60,840
You would save $200 a month on payments and $13,153 over the course of a five-year payout plan.
The second thing InCharge credit counselors offer is just as valuable: Setting up a budget and offering tips on how to manage your money. The counselors review all your income and spending and then make suggestions on how to set up a monthly budget so you have enough money for the basics (food, shelter, transportation), but create enough space to start paying down the credit card debt.
This might be the most difficult option, if only because you must make every choice yourself, starting with the method you plan to use to attack your debt.
Debt avalanche? Debt snowball? Zero-interest balance transfer? Set up your own monthly payment schedule? Mix-and-match?
For the sake of this argument, we will assume you have six or seven credit cards that are maxed out or nearly maxed out at their spending limit of $10,000 and the total debt owed is $50,000. If the minimum payment due for each card was 2%, you would be paying $150-$200 per card, or a total of somewhere around $1,200 month. That’s just for the minimum amount due!
Here is a look at the pros and cons of some do-it-yourself repayment plans:
Bankruptcy is treated like a disease, but it’s a financial cure for a lot of people.
Every financial analyst or debt lawyer would agree to aggressively pursue every other possible solution, but if you can’t eliminate $50,000 in credit card debt in five years, either through a debt management program or your own do-it-yourself plan, bankruptcy is a legitimate answer.
There will be severe consequences from bankruptcy – most pointedly the 7-10 year blot on your credit report and credit score – but bankruptcy gives you a chance to start all over again and there is nothing wrong with second chances.
Because credit cards are considered unsecured debt, the obvious choice for bankruptcy is Chapter 7. In Chapter 7 bankruptcy, you keep what is known as “exempt” property such as a house, car, equipment you use at work and any retirement savings and liquidate “non-exempt” property such as second home, second car, bank accounts, stock investments, card collections.
The money gained from selling assets is applied to your debt and whatever is left over is forgiven.
If this is your only option, it’s best to hire a bankruptcy lawyer to take you through the necessary steps to successfully file. In 2016, 95.5% of people filing Chapter 7 bankruptcy had their debts discharged.
NA, ND. Debt Avalanche. Retrieved from http://www.investopedia.com/terms/d/debt-avalanche.asp
Lindow, G. (2015, June 18) Credit Scores That Get Balance Transfer Credit Cards. Retrieved from http://www.magnifymoney.com/blog/balance-transfer/credit-score-balance-transfer
NA (2017, March) PACER Statistics, compiled by the American Bankruptcy Institute.