Credit cards  are a great thing but some people forget that they are not a source of free money. They rack up charge after charge and the credit card debt piles up until one day they find themselves in a deep hole. Are you one of these people?

If you have massive credit card debt, you may feel like all hope is lost and that there is no way to get out of it. Now, getting out of debt is not impossible but it is very hard. You need to commit to getting out of debt completely for you to be successful. There are nine ways to pay off your credit card debt. You can divide these ways into four tiers, in order from least drastic to most drastic.

Tier 1

The first tier contains two techniques:

1.  Pay more than the minimum payment  on your credit cards every month. The minimum payment is not an amount that will pay off your credit card debt. It is only there to make sure that you continue to make payments. Pay as much as you can every month and you will see your debt decrease slowly but surely. You will have to cut back on your luxuries, but you will enjoy those things even more once you get out of debt.

2.  “Snowballing.”  This means transferring as much debt as you can from your higher-interest credit cards to your lowest-interest credit card without going over its credit limit. You pay off that card as quickly as possible while making minimum payments on your other cards. Once that debt is gone, transfer more of your credit card debt and pay that off until it is gone. Continue to do this until all your debt is gone.

Tier 2

The second tier contains two options:

1.  Cash out savings account & investments.  Nobody wants to lose all of his or her savings, but a large sum of cash can take a big chunk out of your credit card debt. Once you get your debt to a manageable state, you can rebuild your savings again.

2.  Borrow money from family/friends.  This is embarrassing but a loan from the people you love will be much more forgiving than one from anywhere else. If you do borrow money from family or friends, agree to the terms and put it in writing. You do not want to destroy any of your relationships because of money.

Tier 3

The third tier contains three options:

1.  Borrow against your life insurance . This is your own money that you will have to pay back eventually but the interest rate is lower. Make sure that you pay it back before you die. Anything not repaid comes out of your policy’s total value. That means that your beneficiaries will receive less money.

2.  Borrow money from your 401(K).  You can take out at most $50,000 to pay off your credit card debt. You must repay the full amount in five years or it will count as a contribution to you.

3.  Get a home equity loan (if you have a home) . A home equity loan may allow you to eliminate your credit card debt. After that, all you have to do is pay off the loan, which has a lower interest rate than any credit card. However, do not rack up more credit card debt before you pay off your loan. You cannot afford to pay off both at the same time.

Tier 4

The fourth tier is the most drastic and your last resort. This tier contains two options:

1.  Ask for new terms from creditors.   Your creditors know that if you do not get your terms, you may have to declare bankruptcy, which means that they will lose money. Since they are more interested in keeping you as a source of income, they will work with you and give you some very favorable terms. Try to get what you can.

2.  Declare bankruptcy.   You can declare either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy will relieve you of most of your credit card debts, but you may lose most of your assets as well. Chapter 13 bankruptcy will allow you to keep your assets but the court takes control of your finances. The court engineers a repayment plan that pays either some or all of your debt in a certain period. After that, you are debt free.

There are two things to consider before you declare bankruptcy. First, you must pay a lot of money to declare bankruptcy. Second, bankruptcy will stay on your credit report for ten years. This is going to make your life difficult for quite some time. Think long and hard about the long-term effects of bankruptcy vs credit card debt before you declare bankruptcy.

If you have any other questions about credit card debt, please feel free to  contact us .

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