The way you tackle high interest rates on credit card debt depends on your specific situation. If you have good credit, the first thing you want to consider is a balance transfer. Typically, you need a credit score of 660 or higher in order to be approved for a balance transfer credit card, and a score of 720 or higher to get the best offers. Once you are approved for one of these credit cards, you can transfer your balance from a credit card with a high interest rate to the new credit card with a lower rate. Most balance transfer credit cards offer 0 percent interest on the transferred balance for the first year of the agreement, but generally will charge a fee between 3 and 5 percent of your balance.
While the introductory rate is usually 0 percent, you also need to consider what the regular interest rate is after the introductory period is over. The key to determining how important the regular interest rate is for your situation depends on how long it will take you to pay off your debt. You can determine this by using a credit card payoff calculator. If you are able to pay off your debt before the introductory period is over, the regular interest rate is not of much significance to you. However, if you know it will take you much longer, you should carefully consider how much the regular interest rate will cost you over time.
Business owners should consider both general consumer and small business credit cards for their balance transfer. Given that the business owner is personally responsible for the debt incurred on their credit card, regardless of the type of card they choose, it makes sense to also consider a general consumer credit card for your business if it offers a better deal.
If your situation is more serious or you do not qualify for a balance transfer credit card, the first thing you should do is call your credit card company and try and work out an arrangement that is both affordable for you and reasonable to them. If you cannot work something out, you have three debt solution options: debt settlement, debt management, or bankruptcy.
Debt management should be considered if you are barely able to make the minimum payment on your credit card account. If you opt for debt management, your card issuer will close your account and reduce your fees and/or the interest rate. Debt management will also have a marginally negative impact on your credit.
Another option is debt settlement. When you choose credit card debt settlement, you withhold payments from your credit card companies, intentionally defaulting on your account. Doing this will destroy your credit score, but it’s done with the hope that, at some point your credit card issuers will be willing to settle for much less than what you currently owe them. However, even if you withhold payments, your credit card company may not offer you a settlement. This may be the most risky of the three options due to its uncertainty.
Bankruptcy is also a severe option and should only be considered if you find it impossible to make the minimum payments not only on your credit card accounts, but also on other types of debt (i.e. mortgage, car loan, medical bills, etc.). If you go this route, remember that bankruptcy will destroy your credit score, and it will stay on your credit report for up to ten years.
