Best Ways to Pay Off Large Credit Card Debt

Many conditions can lead to large credit card debt, including unemployment, unexpected medical expenses, or living beyond your means. While having some credit card debt may be beneficial, as lenders like to see the responsible use of credit, having excessive credit card debt leads to falling credit scores, rising interest costs and sometimes inability to pay. There are different strategies to handle paying off large credit card debt, and some are more appropriate than others depending on the debtor's personal situation.

Lump Sum Payment

To promote long-term financial stability, and the most beneficial outcome for your credit score, the ideal way to get out of large credit card debt is to pay it off in one lump sum. As soon as the debt is paid off, interest and fees stop accumulating. The freeing up of additional credit can improve credit scores, enabling lower interest rates on any future loans.

Debt Prioritization

Prioritize debt by designating the largest payments toward the highest-interest credit cards. Doing so will shrink overall debt faster.

Negotiation

Contact creditors to negotiate smaller balances in exchange for promises to pay over a certain period of time. Creditors are often willing to do so, especially in a time of rising defaults. At the very least, negotiate lower interest rates, which over time result in lower account balances.

Consolidation

Consolidate credit card debt into a monthly payment plan, either through direct discussions with creditors or through the use of outside debt restructuring companies. While restructuring companies may be able to consolidate overall debt balances more easily, fees for this service are often steep.

Late Payments

Consider debt-reduction negotiations with late payments pending. Resolutions in these negotiations often are more easily accomplished after an account is 60 or 90 days late. Creditors must write-off a debt once the debt ages 6 months without payments, so the more likely it seems that a company will receive nothing for an outstanding debt, they more likely they are to take a lesser payment. This course of action, however, can prove damaging to an account holder's credit report.

401(k) Loan

Debtors who have a 401(k) retirement plan can consider borrowing up to 50 percent of the value of the account for emergency needs, for which excessive debt generally qualifies. Principal and interest are paid back to the investor's account rather than to the credit card companies.