The Federal Reserve estimates that Americans have more than $4 trillion in consumer debt. That’s a lot of money. So if you’re staring down a large debt bill, remember this: You’re not alone. And not only have other people been in your shoes, they’ve also found a way out — and you can learn from them. Here’s what to do if you have $100,000 in credit card debt.
In over your head with credit card debt
Take, Jill, for example. She had solid credit and a steady job when she applied for her first credit card. Initially, it was easy to pay off the balance in full each month as she had vowed to. She was the picture of responsible financial management. But then it became a little too easy to charge things. New furniture. Clothes. Takeout dinners. Then, she had a medical emergency and was saddled with a steep hospital bill she hadn’t expected — and didn’t have a way to pay. She put that on a credit card, too.
Suddenly, Jill found herself in over her head, barely able to meet her minimum payments. Soon, she was late on a couple of payments. Late fees racked up and over time, she wound up more than $100,000 in credit card debt. It was then that she had to get real about her financial situation if she was going to pull herself out of debt and repair her less-than-stellar credit.
If you find yourself in a similar situation, it’s time to come up with an aggressive plan to tackle your credit card debt. Follow these seven steps to move closer to getting your debt under control.
Step 1: Figure out where every penny is going.
To stop bleeding out your bank accounts, you have to get a grip on what you’re spending first. If you’re like most people, you whip out your credit or debit card for everything and it’s hard to keep track of what you’re spending. So the first thing you’ll need to do is take stock of your current spending habits.
As best you can, account for every penny you’ve spent over the last few months so you can get a clear sense of where your hard-earned money is going. Do this by downloading hard copies of your bank statements and credit card bills and manually itemizing each charge. There are plenty of online software solutions or apps that can do this for you, but doing it by hand at first will make it more real.
Group expenses into the following categories:
- Fixed, necessary, I-need-this-to-live costs (rent/mortgage, utilities)
- Fixed, but maybe-not-so-necessary costs (cable, internet, gym membership, other subscriptions you pay monthly)
- Variable costs (groceries, gas/commuting, dining out, shopping)
- Debt (minimum payments on all credit cards, car payments, student loan payments, etc.)
Hold on to this spreadsheet. You’re going to need it after step 2.
Step 2: Create a master debt spreadsheet.
In step 1, you accounted for the minimum credit card payments you must make each month. Next, you’ll need to take full stock of your debt situation. It might not be pretty, but you’ll want to lay it all out so you can start to get real with yourself about how much you owe. Here, you’ll create a new spreadsheet that includes:
- Name of each creditor you owe
- How much you owe in total on each card
- Minimum payment required
- Monthly payment due date
- Interest rate
Keep this document handy. You’ll want to update it every time you make a payment.
Step 3: Build a better budget.
Now that you have all the info you’ll need on your current spending (step 1) and your debt (step 2), you’re ready to create a realistic budget. The keyword here is realistic. Don’t assume you’ll suddenly be able to slash your grocery bill in half, give up dining out completely or never shop again. That’s hardly reasonable for most people. Things come up, like a friend’s birthday celebration, an impromptu dinner with a colleague, needing to replace a ripped shirt before an important meeting. In fact, you’ll want to plan for these unexpected expenses in your budget (like a mini monthly emergency fund), so you’re able to factor in extra costs that will most certainly arise now and again.
So, how should you design your budget? Begin with the goal: to free up as much cash as is reasonable to put toward paying down debt. “You need to make adjustments to your spending as fast as you can to adjust to your reality,” says Michael Bovee, co-founder of Resolve and a debt relief expert with more than 20 years experience.
Start with income. List how much money you have coming in each month, so you know exactly what you have to work with. (And if you can find ways to increase your income, by all means, go for it! Whether that’s taking on side projects or a second job, increasing your earnings is one of the best ways to slash debt faster.)
Then, move on to expenses. Some expenses can’t be changed immediately (your rent is your rent), but ask yourself: Could you trim your grocery bill by 10% or more? Are you paying for streaming services you never use and can cancel immediately? When was the last time you even used that gym membership? Are there commuting options cheaper than how much you’re paying for gas?
And don’t be afraid to think big: Could you downsize your living expenses by moving? Is selling your car an option? While small adjustments always help, look for ways to make changes that will move the needle in a big way.
Questioning all your variable costs and looking for ways to scale back will allow you to see how much extra cash you can allocate toward your credit card balances beyond just the minimums.
Step 4: Create a DIY debt repayment plan.
There are many schools of thought on how to pay down debt. The popular debt snowball method recommends wiping out your smallest credit card debt first by increasing your payment on that card (while paying the minimum on the rest of your debt) until that first debt is paid off. Then, move on to the next debt and do the same thing. This allows you to build up stamina with small wins.
Other financial experts recommend paying off your credit card debt with the highest interest rate first (because it’s costing you the most money), known as the debt avalanche method. Decide which method will work best for you and commit your new surplus cash (found in step 3) to one or more of your balances.
Step 5: Call in reinforcements.
When you’re staring down a six-figure debt, going it alone can be tough. Consider using these tools to help you reach your goal:
- Download a banking or debt app. Programs like Mint.com, You Need a Budget (YNAB), the GoodBudget app, and many more apps and programs can help you keep tabs on your spending and your money goals in real time. Road test a few and find one you like best. That way, you’ll increase your odds of sticking with it.
- Call your creditors. Call each credit card company you owe money to and ask if they can lower your interest rates or if you can enter into a hardship program. You’d be surprised how many are willing to work with you if you just ask. And remember: Any reduction in interest, no matter how small, will result in money saved.
- Sign up for credit counseling. If you’re having a hard time creating a plan for yourself, think about working with a reputable credit counseling agency to help you budget, think through creative ways to reduce debt, and even negotiate with your creditors (more on that in step 6). Keep in mind: These services typically come with a fee.
Step 6: Think about bankruptcy.
No one likes to talk about the B-word, but there are times that bankruptcy, especially Chapter 7, may be a good option for you. Bankruptcy gives you court-ordered protection from creditors and allows you to discharge unsecured debts or enter into an organized repayment plan.
There are several types of bankruptcy:
- Chapter 7: There’s no repayment necessary, and you can have a clean financial slate in as little as 90 days, but keep in mind that this will stay on your credit report for 10 years.
- Chapter 11: Your debts aren’t wiped out in this case and you’ll have to establish a debt repayment plan. This option is most often used by businesses.
- Chapter 13: Your debts aren’t wiped out in this case and you’ll have to establish a debt repayment plan. The key difference from Chapter 11 bankruptcy is that a trustee will be appointed to make sure you make the agreed upon payments. It stays on your credit report for seven years. If you miss a single payment, the plan is cancelled and you’re back to square one.
So what’s the best option for you? Bovee stresses that Chapter 7 is the best option where viable, while Chapter 13 should only be an option of last resort. No matter what, you’ll want to consult a financial professional and a bankruptcy lawyer to confirm you’ve exhausted all other options first and fully understand the implications of what bankruptcy does to your future financial health.
Step 7: Consider debt management.
Like bankruptcy, debt management isn’t for everyone. With a debt management plan (DMP), credit counselors work with your creditors to lower your monthly payments by negotiating a lower interest rate. They also might be able to get your late fees reduced or waived. DMPs can last up to five years and you won’t be able to access most of your lines of credit during that time. And there can’t be any slip-ups: If you miss a payment, the plan will often be cancelled and you have to start over with a new plan of action. This lack of flexibility might not be the best choice as a lot can happen over the course of five years.
Having a huge amount of credit card debt (or any debt) is stressful. You might feel helpless, but you’re not. Do what you can to get your income and expenses under control, and if you need professional guidance, don’t be afraid to ask for it.
How Resolve can help
Managing your debt can be a challenging process where professional guidance really pays off. If you’re considering bankruptcy, debt consolidation or a debt management plan, Resolve can connect you with a trusted partner in the Resolve Network for a free consultation and payment quote. If you haven’t yet created a Resolve account, click here to get started.