How To Get Out of Credit Card Debt Without Ruining Your Credit

It’s easier to rack up debt than to pay it off. If you’re feeling the pressure of mounting debt, you’re not alone. But with the right steps and strategies, you can get credit card debt relief without hurting your credit. 

Let’s see how.

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

3 Steps to Pay Off Your Debt Without Ruining Your Credit

Each step can affect your credit, and understanding why can help you avoid negative effects.

1. Make a plan and stick to it

Creating a debt repayment plan is key to getting out of debt. A simple step-by-step plan keeps you organized and focused.

Here are some steps to consider:

• Use one credit card. This helps you avoid adding more debt.

• Keep your credit cards open. Paying off debt lowers your credit utilization ratio (how much of your available credit you’re using). Utilization is a big credit score factor. Having a lot of available credit with little or no credit card debt is a good thing.  

• Choose a plan you can follow. We’ll explore debt snowball, debt avalanche, and consolidation options below.

• Stay disciplined. If you’re tempted to overspend, stash your cards away and switch to cash or debit. Building new habits takes time, but helps you get out of credit card debt.

Pro tip: Some people benefit you from closing credit card accounts after paying them off. For example, if keeping an Amazon rewards card open leads to you overspending at Amazon, you may want to close the card. Financial stability is the end goal. 

2. Make your payments on time every time

Making your payments on time is key for getting out of credit card debt without damaging your credit score. Your payment history has more influence on your credit score than any other factor. It’s very important to make at least the minimum payments on time. 

On-time payments reassure potential lenders. Timely payments also help you avoid late fees and extra interest costs.

To stay on top of your payments:

• Keep your debt organized. Use a spreadsheet or digital tool to track your balances.

• Set up direct debits. Cover minimum payments, and pay more if possible.

What if you miss a payment? You typically have about 30 days to make the missed payment before it’s reported as overdue. Pay the minimum as soon as possible to protect your credit.

3. Take care of problems with creditors quickly

Responding to creditor issues quickly is key to getting out of credit card debt without ruining your credit. 

Unexpected challenges like layoffs or illnesses can hit anyone. If something happens and you’re hurting for money, contact your creditors to negotiate a payment plan. They may prefer working with you over involving debt collectors.

Some lenders offer hardship programs that include temporary perks like lower payments or late-fee waivers until you overcome your financial difficulties. Credit card companies don’t advertise these, so call the number on the back of your card and ask. 

Hardship programs usually don’t affect your credit score if you negotiate them before you fall behind. That said, your lenders may report the arrangement to the credit bureaus. Anyone who checks your credit report would be able to see that the account is enrolled in a hardship program.

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Debt Repayment Plans That Don’t Hurt Your Credit

Choosing the right repayment plan is key for getting out of credit card debt without damaging your credit score. The debt snowball and debt avalanche are effective repayment strategies.

Debt snowball or debt avalanche

The debt snowball and debt avalanche are proven strategies to get out of credit card debt.

• Debt snowball: Pay off balances from smallest to largest, regardless of interest rates. Quick wins on smaller debts can boost motivation.

• Debt avalanche: Tackle debts with the highest interest rates first. This saves money over time by reducing interest costs.

Both approaches work if you make at least minimum payments on time, since overdue payments hurt your credit. Paying down debt also lowers your credit utilization, potentially boosting your score.

Too complicated? A plan that simplifies payments even further is the debt consolidation loan.

Debt consolidation loan

A debt consolidation loan could help you get out of credit card debt by merging multiple debts into one loan, often with a lower interest rate. Managing one payment can be simpler, and you might qualify for better terms, depending on your credit score and debt-to-income (DTI) ratio.

How it affects your credit:

• A hard inquiry from applying for the loan may slightly dip your score short-term. It stays on your report for two years but only affects your score for one year.

• Paying off credit cards lowers your utilization, which could improve your score, even with new installment debt. The key is to avoid running new debt up on the paid-off cards.

• A mix of credit types (credit cards and installment loans) could benefit your score.

Pay the new loan on time to avoid negating these benefits, and to fully support your efforts to get out of credit card debt.

Too slow? A plan that quickly gives you a jump on getting ahead of interest charges is the balance transfer credit card.

Balance transfer

A balance transfer could help you clear your debt by moving balances to a card with a 0% APR for a period (typically 6 to 21 months). That gives you a chunk of time to make headway against your balance while paying no interest. Check your current cards for offers, or apply for a new one if your credit is good enough to qualify.

What to consider:

• Expect a balance transfer fee (often equal to about 2-3 months’ interest).

• A hard inquiry from a new card application may temporarily lower your score.

• Any balance that’s not yet paid off at the end of the promotional period will be subject to the card’s regular interest rate. Credit card interest rates are almost always high.

It May Be Worth Ruining Your Credit to Deal With Debt

Debt management plans, bankruptcy, and settlement programs prioritize dealing with debt over short-term credit concerns. Explore these options carefully. 

Debt management plan

A debt management plan (DMP) from a credit card counseling agency helps you get out of credit card debt with negotiated lower rates and payments. You pay the agency, who then pays your creditors, while counselors guide your finances.

Here are some ways a debt management plan can affect your credit:

• Closing credit cards before they’re paid off—which is often required—is likely to hurt your score.

• On-time payments could improve your score.

• Creditors might report the DMP, making it visible to anyone reviewing your credit.

Credit counselors can also help you sort out personal finances in general. 

Note that the monthly payment on a DMP is typically very high. This is a good option to consider if you can afford to fully repay your unsecured debts in three to five years.

Bankruptcy

Declaring Chapter 7 bankruptcy is an effective way to clear unsecured debt. First, you have to pass a means test. This is an evaluation of your income to determine whether you have the means to make a monthly payment. If you don’t, you could apply for Chapter 7 protection.

Note that in a Chapter 7 bankruptcy, you might have to give up some of the things you own. 

Here’s how declaring bankruptcy affects your credit:

• Your credit score drops big-time. 

• Your credit score remains affected for 10 years.

• Credit options will be more limited and expensive while the bankruptcy ages off your credit report.

Chapter 7 bankruptcy is worth looking into when you can’t repay your debts, you don’t own much, and you can’t afford a payment. Consult a bankruptcy attorney to explore whether it’s the best strategy for you.

Debt settlement or debt resolution

Debt settlement negotiates a reduced payoff amount with creditors. You or a hired company do the negotiating. Creditors may accept partial payment if they believe they aren’t likely to collect the money otherwise. 

Here’s how debt relief could affect your credit score:

• If you miss any debt payments, your credit score is likely to suffer. Most people stop making debt payments and instead save money to make settlement offers to their creditors.

• Settled debts are reported to credit bureaus, impacting your score for seven years from the first missed payment.

Forgiven debt might become taxable income, but not if you’re insolvent. Insolvent means what you owe is worth more than what you own. 

Debt settlement might be a good path when you can’t reasonably repay your debt and you don’t qualify for Chapter 7 bankruptcy. Reach out to a professional debt settlement company to discuss details.