What to Do When You're Drowning in Credit Card Debt

Feeling like you’re in over your head with debt is an overwhelming and isolating experience. You might be losing sleep, worried about how you’ll ever get out from under the weight of it all. The good news is you’re not alone, and with a solid plan, you can regain control. This is especially true when you're focused on goals like , as financial stress can derail your progress. Strong and entrepreneurs starts with tackling existing debt.

Your Credit Report and How It Works

A credit report is essentially your financial report card. It’s a detailed record of how you’ve handled borrowed money, compiled by credit bureaus based on information from banks, credit card companies, and other lenders. When you apply for a loan, potential lenders pull this report to gauge the risk of lending to you.

Understanding your rights under the Fair Credit Reporting Act is crucial. You can find a full rundown on the Federal Trade Commission’s (FTC) website. Knowing what's in your report before a lender sees it gives you the power to correct any errors. This is a non-negotiable step if you’re planning on buying a home or making another large purchase.

What’s Actually in a Credit Report?

Your report contains a mix of personal and financial information:

• : Your name, current and past addresses, phone number, Social Security number, date of birth, and employment history.
• : A breakdown of each credit account, including when it was opened, the credit limit or loan amount, your current balance, and your payment history over the last several years.
• : Information like bankruptcies, tax liens, car repossessions, and court judgments.
• : Accounts sent to collection agencies will be listed. Even after you pay it off, a “paid collection” note stays on your report for seven years from the first missed payment.
• : A list of who has recently requested a copy of your report.

It’s important to note what’s included: your race, religion, political views, medical history, or criminal record.

How to Review Your Credit Report

Financial experts suggest pulling your credit report at least once a year. Thanks to the Fair Credit Reporting Act, you’re entitled to one free report from each of the three major credit bureaus—Equifax, Experian, and Trans-Union—annually. The official, government-mandated site for this is . Be wary of imposter sites that promise free reports but eventually ask for payment.

Because not all creditors report to all three bureaus, it’s a smart move to check your report from each one. If you find an error, contact the credit bureau in writing, explaining the issue in 100 words or less and providing any supporting documents. Send it via certified mail to ensure it’s received.

How Lenders See You

Lenders use your report to assess your financial character, capacity for more debt, and any available collateral. They look at your job stability, how much debt you currently carry versus your income, and whether you have assets to secure a loan (like a car for an auto loan).

Increasingly, this evaluation is distilled into a single number: your credit score, often called a FICO score. This score, generated by a computer algorithm, predicts how likely you are to repay a loan on time. For a fee, you can get your FICO score from the bureaus or directly from . Improving your score generally involves paying bills on time, keeping balances low, and avoiding opening too many new accounts at once.

Strategies for Paying Down Debt on Your Own

Once you’ve accepted that it’s time to tackle your credit card debt, the first move is to stop using the cards. From there, consider which of these strategies fits your situation.

Use Savings or Sell Assets

If you have savings earning a low interest rate while your credit cards are charging double digits, it makes mathematical sense to use some of that cash to pay down debt. Similarly, selling valuable items like stocks or collectibles can free up funds. If you're selling stocks, you're touching on the basics of , and it can be a practical lesson for anyone interested in down the road.

Use Your Home's Equity

Refinancing your mortgage or taking out a home equity loan can consolidate high-interest debt into a single, lower-interest payment. However, this strategy is incredibly risky. You are turning unsecured debt (credit cards) into secured debt tied to your home. If you miss payments due to job loss or illness, you could face foreclosure. Don’t risk your most valuable asset unless you are absolutely confident in your ability to make the new, higher payments.

The Credit Crunch Method

Also known as the debt avalanche or snowball method, this strategy focuses your efforts. List all your debts from the highest interest rate to the lowest. Make the minimum payment on every debt except for the one with the highest interest rate. Throw every extra dollar you can find at that top-priority debt until it’s gone. Then, take all the money you were paying on that first debt and apply it to the next one on the list. This disciplined approach can save you a fortune in interest.

Getting Outside Help

If going it alone feels impossible, there are other options.

• : Moving a balance to a card with a low introductory interest rate can provide some breathing room. But be careful. These low rates are temporary, and if you don’t pay off the balance before the promotional period ends, you could be hit with an even higher rate.
• : Borrowing from your retirement account is a dangerous path. While the interest rate might seem low, you’re pulling money out of the market, losing potential growth that you’ll never get back. Worse, if you leave your job for any reason, the entire loan balance is typically due immediately. Fail to repay it, and you’ll face taxes and a 10% penalty. It's a critical aspect of to protect retirement funds, as there's no company pension to fall back on.
• : Reputable agencies, like those affiliated with the National Foundation for Credit Counseling (NFCC), can help you create a debt management plan. They negotiate with your creditors to potentially lower your payments. This isn’t a loan; you pay the agency, and they distribute the funds to your creditors.
• : Sometimes, all you have to do is ask. Call your credit card company and ask for a lower interest rate, especially if you’ve been a long-time customer. The worst they can say is no.

Prioritize and Avoid Scams

If your financial situation is dire, prioritize your payments. Your mortgage/rent and car payment should come first, as they secure your housing and transportation. Then, focus on utilities and other essential loans.

Finally, be on guard against credit-repair scams. Any company promising to erase accurate negative information from your credit report for a fee is lying. It's legally impossible. The only way to rebuild your credit is through time, discipline, and consistent, on-time payments—the foundation for a healthy financial future, whether you have a or are working toward another goal.