Eliminate Credit Card Debt

Alamy

Using only one card with a low interest rate can help manage credit card debt

En español

Let's be honest, no one likes getting into debt.

However, according to the U.S. Federal Reserve, if we take the total credit card debt in the United States and divide it among the number of households, the result is $7,281. If we eliminate households without credit card balances and only consider those with debt, the situation is even worse: The number increases to $15,863 per household.

And that's not all. Debt balances increased by 2 percent from 2014 to 2015, leading to higher monthly payments. The result: more strain on family budgets.

That's why today, more than ever, you need to know the options to lower your monthly payments and still continue to meet your financial responsibilities.

1. Consolidate all credit-card balances into a single card

If you've been making payments on time, you may qualify for a credit card with low or no interest and transfer balances from your existing accounts to the new one. That way, you would have only one payment to make each month and the amount could be lower than what you currently pay.

According to the Consumer Financial Protection Bureau (CFPB), the special interest rate offer from the credit card must remain in effect for six months or more, and you must be notified in advance about what the interest rate will increase to after the offer expires.

Find out whether there is a fee to transfer your balances to the new card, and don't forget to make all your payments on time. If you're ever late with your payment, the special offer will end and you'll be charged a much higher interest rate.

In addition, find out whether the low or zero percent interest also applies to other purchases you make with that card or only to the transferred balance. If you have two balances on the same card with different interest rates, keep in mind that creditors usually apply the required monthly minimum payment to the balance with the lowest interest and, by law, must apply any additional amount to the balance with the highest interest. This could extend the time needed to pay off the debt you transferred and you would also keep accumulating additional debt.

Make sure to accurately calculate whether the months of low interest being offered will be enough to pay the debt in full. Otherwise, once the low-interest period ends, you could either start paying a much higher interest rate or be tempted to transfer the remaining balance again, with the resulting fees.

Use this calculator to figure out the monthly payments you must make to pay off your debt within a certain number of months.

2. Get a loan from a bank or credit union to pay off your debts

Banks and credit unions offer this type of loan so you can completely pay off credit card balances and replace them with a single loan at a lower interest rate.

To make sure this option works for you, add all your monthly payments — including interest — and compare the total to the payment required for the new loan.

Beware of offers in which the low interest rate only applies for a certain period of time and ask if there are any additional costs.

These first two options require you to have the discipline not to use your credit cards again; doing so could create an even bigger problem, since you would owe money for that in addition to the loan or new card you got to pay off your credit cards.

3. Enroll in a debt management plan at a credit counseling agency

Before committing to one of the previous two options, consult with a credit counseling agency.

The CFPB recommends that you reach out to a nonprofit agency. These agencies must comply with strict requirements that protect you as a consumer and offer additional services like help preparing a budget and courses to help you manage your debts and savings.

Beware of agencies that propose a debt management plan (DMP) without first finding out about your financial situation. In those cases, payments are made to the organization and they make your monthly payments to the credit card companies.

To see a list of approved agencies, visit the U.S. Justice Department's website. The list is in English, but it shows which agencies offer services in both English and Spanish.

If you have a complaint or concern about a company that you think has committed credit repair fraud, contact the Federal Trade Commission (FTC) toll-free at 877-FTC-HELP (382-4357).