How Do I Pay Off $7,500 in Credit Card Debt?

Dear Credit Card Adviser,

I currently have a credit card with an existing balance of $7,500 with an interest rate of 15.99 percent. My financial institution has reviewed my account and will not lower my APR, or annual percentage rate.

If I make just over the minimum payment, it will take me 32 years to pay it off and I will pay $13,500 in interest! Until I can make more money and therefore make larger payments, what are my options?

- Stoughton

Dear Stoughton,

There are ways to get rid of massive credit card debt. We'll run you through all of them, including their pros and cons.

You have a few options. I'll review them from the riskiest to the most conservative.

It looks like you carry an average interest rate on your credit card, so I'm assuming that you haven't had any recent late payments. If you were past due paying your credit card bill, your issuer would increase your interest rate -- called a penalty rate -- which would likely be higher than 15.99%.

If you have indeed been making your payments on time and your credit is in good shape, you may be able to qualify for a credit card that has a zero percent interest rate for balance transfers for a limited period, anywhere from six months up to 18 months. That way, you don't have to pay interest on your payments and can reduce your debt faster.

The problem with this solution is that first, you have to qualify for a balance transfer card and second, if you qualify, you need to be approved for a large enough limit to transfer your entire balance. Unfortunately, you won't know your credit limit until after the card is opened, so you could end up having only part of your $7,500 balance on the no-interest card and whatever is left over on the card with the 15.99 percent interest.

The other risk is if you don't pay off the balance during the no-interest period, you could end up having an APR that is higher than your original rate. That could make paying off the remaining balance that much harder and more expensive.

Another possibility is to consider a debt consolidation loan, especially through a home equity loan, also known as a second mortgage. While this puts your home at risk if you should default --the collateral securing the loan is the equity in your house -- you will likely get a lower interest rate than what you have currently on your credit card. The average rate for a home equity loan is 6.22%, according to Bankrate's most recent weekly survey of rates. Of course, this option is only available to you if you own a home.

My last suggestion, which is the one I strongly recommend, is to seek help from a certified, nonprofit credit counselor. A counselor can go through your budget and help you find ways to cut expenses so you can pay more toward your credit card balance. A counselor can also help put you into a debt-management plan, if that is the right course of action for you.

A debt-management plan is when a credit counselor arranges a new payment plan with a lower interest rate with your credit card issuer if you show hardship. The plans usually run from three to five years and you make payments through the credit counseling agency. The agency also may take a small monthly fee for administering the payments. Typically, you must agree to not take out any other credit during the implementation of the debt-management plan, as part of your agreement with your issuer. The plan also doesn't hurt your credit like a debt settlement does.

To find a certified credit counselor in your area, I recommend going through the National Foundation for Credit Counseling. Its website can help you locate a reputable credit counseling agency in your area. Remember, you should never pay up front for any credit counseling services. An agency only can charge you after performing a promised service. Good luck!

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