Solving the Credit Card Debt Enigma


Everyone hears about how ‘Americans are in debt,’ but what does that specifically mean?  Where are these debts stemming from, and most importantly, how do we combat them?

There are 4 major categories that dominate the debt umbrella.  These are credit card, student loan, auto loan and medical expenses.  Most Americans dealing with significant debt face at least one of these main groupings, and sometimes all four.  Mortgage debt is another big one, but this obviously only affects Americans who own property.

Ok, this first article on the overarching debt topic will address one of the most massive and common debt types there is.  This financial liability afflicts millions of Americans; that which is born from credit cards.  This one is quite sneaky, as you can go from having a brand new, sparkling card with a zero balance and huge limit on it, to a maxed out piece of toxic plastic in a few short weeks.  Running parallel to this is your credit score, which can nosedive from a decent rating to an abysmal one fairly rapidly as well.  Finance guru and advice dispensing juggernaut Suze Orman offers some very sound tips on the subject.  As you begin to fall into the canyon that is credit card debt, enterprising “debt consolidation” companies swoop in like avaricious vultures and offer seemingly desirable solutions (your diminished credit score is readily available to them and they can smell blood in the water from miles away).  They can ‘absorb your credit debt and set you free.’  The reality is that these companies just prolong the inevitable and do so in a way that is more detrimental than the credit companies could even dream up.  The debt consolidators (aka “settlers”) promise to erase your monstrous debt by striking a deal with your card company.  Instead of paying the credit card companies directly, you pay the settlers an “upfront fee” ranging between $700 to $1000 (which you will never see again), they use that to make a settlement with your credit co. (for $0.40 to 0.60 on the dollar), and then you pay them a percentage of the settlement fee as well.  Yay!  Now your debt is officially settled.  …Too bad you could have just contacted the credit card company and worked out this same exact deal with them, only without having to pay that ‘settlement fee percentage.’


If you can pay the credit card company any amount, even a smaller percentage of the overall debt (a third, for instance), they are almost always quite amenable to this.  “They would rather have something than nothing!”  exclaims an enthused Suze Orman on her eponymous show.

Now, here’s the nitty gritty.  Once you are ready to personally settle your debt with your credit company (or if it’s come to it, a collection agency), you need to follow these rules.

  1. Do NOT pay off debt using a check from your personal bank account; only use a money order or a cashier’s check (you don’t want any of these people knowing this sensitive bank information of yours).
  2. On the money order or cashier’s check, clearly write: “If this check is cashed, that makes this account (write entire account number here) settled in full.”  Make copies of this.
  3. Tell the credit company that you want it listed on your credit report that your account is “Paid in full” – as opposed to “settled.”  The reasoning here is that potential creditors in the future will see that you settled the account, and this places you in the “high risk” category.
  4. If you are settling with a collection agency, then you need to get IN WRITING that the “agency purchased debt from creditor; creditor can not seek to recuperate the difference in amount of what the settlement was for and the initial debt.”
  5. You may owe *the government* income tax on the amount you settled on AND/or the difference on the original amount owed.  You should tell the collection agency to formally stipulate that you do not owe income tax on that money.   If they will not comply with this request, you may still be exempt from such income taxes IF you are “insolvent.”  This means that you owe MORE than what you actually HAVE.

Diamond-Lighthouse-broker-man-stressed-work offers some great advice to on how to tackle the credit debt chimera as well.  Since those who have credit debt typically have several cards, you can hone in on one and make paying that off your top priority.  It’s best to choose the card that has the highest “utilization” (which is a euphemism for the card that is closest to being maxed out) and pay that off as quickly as possible, as that will immediately improve your credit score.  If one card has a significantly higher interest rate than the others, it may behoove you to pay some of the highest utilization card’s balance and then focus on the high interest rate card right after.  This will not only help your score but will save you what could amount to a lot of money as well.

Another extremely simple yet highly effective thing you can do is call your card company and ask for a lower percentage interest rate.  This sounds too good to be true but it really isn’t.  If you credit score is not in the lower tiers they will often work with you on this.  The old “one of your competitors offered me a better deal…” line is as useful as ever in this circumstance too.

An old fashioned balance transfer is a smart way to eliminate high interest rates as well.  Many competing credit companies may offer you this option.  It makes sense and will save you tons of cash – pending that you don’t go over the allotted lower interest time frame in paying off the debt.  If you do, you may find yourself paying a way higher interest – so just be cautious about calculating and allocating what money you will have over the next year or so.


The other (potentially not so) obvious alternative is to take out a loan.  A “peer-to-peer” loan, offered by established firms such as or, can set you up with a payment plan that can cost you a fraction of what the credit card companies require in interest.  Again, if your credit isn’t horrific, you could qualify for a substantial loan and knock off your entire credit debt in one fell swoop.

Last, when you make 2 minimum payments per month, the interest for that month goes down a few points, which translates to less unnecessary cash you have to dole out.  The bottom line is that the faster you pay off your loans, the less overall interest you will have to remit.

The final thing to consider (which really should be the first thing you think about in terms of personal finances) is how to manage your money.  You do not need to enlist the help of a “credit management professional” or “debt relief specialist.”  You can easily do this on your own.  The Federal Trade Commission suggests that you “do a realistic assessment of how much money you take in and how much money you spend.”  There are certain expenditures which fit in the “fixed” criteria, meaning they are necessary and occur each month.  These include the basics such as housing expenses, insurance premiums, car related costs, etc.  The next section of expenses are things that can vary from month to month, some of which may even be optional (food shopping, entertainment related activities, shopping for personal effects, and so on).  Once you divide all of your expenses into these two categories, you can see exactly what you need to spend on each month and what can be trimmed.  It sounds very simple and obvious, but seeing these things down on paper (or tablet) really helps to solidify them into a concrete spending plan.

All these small steps combined can really go a long way in erasing that seemingly insurmountable credit card debt, improving your credit score and ultimately letting you breathe a well deserved sigh of sweet relief.



-Joe Leone


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