How to Pay Off Credit Card Debt Without a Loan

Americans are drowning in debt. If you want to know why, return to 1812.

“We have met the enemy, and he is us.”

That’s what Commodore Oliver Hazard Perry said after the U.S. Navy defeated the British in the Battle of Lake Erie. In the modern-day Battle of Debt, the words still apply, with an added twist.

“We have met the enemy, and he is us … and our credit cards.”

Credit card debt hit a record $1.21 trillion in the first quarter of 2015, according to the New York Federal Reserve. We are a nation of credit card addicts, and a lot of consumers get loans to pay off those debts.

But does it make sense to take on additional debt to get out of debt?

It can, but there are other courses of action you should consider like negotiating with creditors, investigating hardship programs, trying a debt management, debt settlement plan and exploring practical strategies for how to get out of credit card debt without digging a deeper hole.

Alternative Ways to Pay Off Credit Card Debt

The first thing to ask is, “Do I really need help paying off my credit card?” If you routinely fail to pay the full balance each month, the answer is yes.

Yes, because not paying off credit card bills is like getting on a financial treadmill. Interest rates will make the debt increase faster than you can keep up.

If you’re spinning your financial wheels, getting a loan to pay off your Visa and Discover bills might look attractive. It will make sense if you get a low interest rate, but that’s a long shot. Most loans are based on credit scores and yours would take a beating every time you missed or were late with a payment.

That said, there are risks. Loans come with a slew of fees that could potentially negate any savings from a lower interest rate.

You could end up paying more than the minimum monthly payment your credit cards require. And suddenly having a $0 balance may lull you into believing it’s an open season to charge up a new storm on your card.

So carefully weigh those pros and cons before getting a loan. If it doesn’t make sense, consider other options, especially if you’re showing signs of having too much credit card debt in the first place.

Talk to Your Creditors

Creditors don’t want to lose your business. If you’re having trouble making payments, they’ll often cut you some slack.

They might lower your interest rate or even lift interest charges for a limited time. You could get a lower monthly minimum payment, have certain fees waived or even have your payments paused.

Then again, they may just shrug and tell you to figure another way out. Either way, it’s worth reaching out to the creditor and making your case.

But don’t mess around. If you’re in danger of missing a payment, let the credit card company know.

If you fall 90 days behind, issuers typically turn delinquent accounts over to a debt collection agency. That creates a whole new world of aggravation and frustration, not to mention more damage to your credit score.

Decide on a Payment Plan – And Stick to It

When it comes to financial solutions, you are always better off starting off with a plan than just winging it.

In the battle against credit card debt, there are two popular plans. One is debt snowball or stacking.

With the snowball, you itemize your credit cards in order from the smallest to the largest balances you owe. Concentrate on paying off the card with the lowest balance and make the minimum required payments on the others.

When you pay off the first card, move to the next one on your list. The philosophy is simple: Small victories lead to larger ones. You build momentum and eventually knock out all your credit cards.

The other popular strategy is the debt avalanche, which is essentially just the opposite of the debt snowball. You attack the credit card with the highest balance first, then work your way down.

The idea is to get rid of the debt with the highest interest payments first. Mathematically, it makes more sense than the avalanche method since you’ll pay less in interest charges. But you won’t have the emotional boost of quickly paying off a credit card, like you would with the snowball method.

Both approaches have proven effective – if you stick with them. You’ll be tempted to back off in this battle, but you have to stand up to those punches.

It might help if you set up automatic payments. That will help avoid late fees and other penalties, but you’ll need to monitor the payment amounts to make sure you’re devoting the right amount to each account.

Move Debt to a Balance Transfer Credit Card

If you’re trying to escape credit card headaches, it seems counterintuitive to add another one to your card collection. But that’s another way to avoid taking out a loan to pay off credit card debt.

It only works, however, if your new card has a balance transfer plan.

A good one will allow you to move existing credit card debts to the new card and not be charged interest on that amount for a “limited” time. “Limited” usually means between 12-18 months.

The pros are that you can save a lot of money on interest charges. And you can simplify things by consolidating all those card payments into one monthly bill.

The cons are that there’s typically a 3%-5% transfer fee. If you transfer $10,000, you’ll pay between $300 and $500 for the privilege of getting a balance transfer card.

And you’ll need to watch the calendar.

When the introductory 0% rate expires, you’ll be paying 20%-plus interest on the transferred amount. So, you’ll need to prioritize paying off that balance during the introductory period, or end up in the same pickle you started in.

Consider a Debt Management Plan

If having only one payment a month appeals to you, consider a Debt Management Plan (DMP).

It’s a repayment plan managed by a nonprofit credit counseling agency, like InCharge Debt Solutions. Contact the agency and you’ll be hooked up with a certified counselor who’ll review your financial situation.

The counselor will work with your creditors to set up a repayment plan with lower interest rates. Those debts are consolidated into one monthly payment, which is lower than the payment you were previously shelling out.

The downside is that you must close your credit card accounts, a situation that will probably take some time to get used to. And it’s not a quick fix. A DMP still typically takes 3-5 years to complete. But people who stick with the program usually find it was worth the wait.

Take Advantage of Credit Card Hardship Programs

If you check the website of your credit card issuer, you’ll probably find a “Hardship Program” listed. It might not be specifically called that, but most issuers have programs that offer various kinds of financial relief.

You might be eligible, but you’ll have to prove it. Creditors may want to see medical bills, unemployment documentation or other documentation about what caused the problem.

This will not magically make your debt disappear, but it might buy you time to get things in order. Just remember, hardship programs are temporary. You’ll eventually have to resume making regular payments, which may be higher if you’ve accrued interest during the hardship period.

Use a Debt Settlement Plan

Debt settlement could slash what you owe to credit card companies, but there’s a catch. In fact, there are a lot of catches.

A debt settlement company will advise you to stop paying your monthly bill. The credit card company will conclude you’re a lost cause and it might have to turn your debt over to a collection agency.

But the settlement company will swoop in and negotiate a (slightly) better deal with the creditor. In the meantime, you’ll open an escrow account and put your monthly payment there.

Eventually, you’ll have enough in there to make a lump-sum offer to the credit card company. That sum will be a lot lower than what you owed, so it’s a win-win, right?

Not quite.

Debt settlement companies typically charge 15%-25% of the amount you owe. The forgiven debt is taxable. And a debt settlement will knock about 100 points off your credit score and stay on your credit report for seven years.

None of which is to say debt settlement should be automatically disqualified as an option. Just think long and hard before taking it.

Staying Motivated While Paying Off Debt

Let’s face it. Paying off a debt can be as fun as fighting boxer Mike Tyson in his prime. Actually, that’s a bad analogy since most Tyson fights lasted about 93 seconds. The slugfest against debt can drag on for years.

It requires discipline, focus and sacrifice, all of which require motivation. The mere thought of financial freedom might be enough for some people, but most need an occasional boost.

Consider asking a friend or family member to be your accountability partner. They can help you keep track of your progress and pep you up when needed.

Have visual reminders of your progress. Put up a chart showing your goals and note the headway you’re making.

It’s a long journey, but you don’t have to wait until the end to celebrate. Set goals along the way, like paying off one of your credit cards. Give yourself a budget-friendly treat. Maybe a nice dinner out. Just avoid the $180 bottle of wine.

Avoiding Common Mistakes When Paying Off Debt

The credit card battle is tough enough on its own. The last thing you need is self-inflicted wounds. Here are a few mistakes that are commonly made:

• Missing deadlines. Late fees are an avoidable waste of money.
• Ignoring high interest rates. Debt with 8% interest is a lot easier to pay off than debt with 25% interest.
• Misunderstanding introductory offers. They can be helpful but remember that they expire and come with transfer fees.
• Credit card craving. It’s just spending more money you don’t have. Try to use a debit card whenever possible.
• Going it alone. That can work, but having an accountability partner or enrolling in a DMP can make it easier to stick with the program.

What to Do After Paying Off Credit Card Debt

It takes discipline to get out of debt. Once you’re out of it, use that same discipline to reach new financial goals.

One would be to set up an emergency fund to cover 3-6 months of living expenses. If you have a mortgage, pay more than is required. An extra $200 a month can knock years off a 30-year loan.

Create a budget that makes you live within your means. That could help increase your credit score, which will make it easier and cheaper to get future loans or other forms of credit.

One form is, of course, credit cards. If used right, they can be your friend. If used wrong, they can be your enemy.

Make the right choice. After digging out of debt, the last thing you want is to fight that battle all over again.