Four Steps for Managing Your Credit Card Debt

It's easy to get in over your head with credit card debt: According to a recent Consumer Reports survey, 23 percent of all credit card holders carry a balance of more than $10,000, and 20 percent of survey respondents said that they didn't know when they'd be able to pay off their debt.

Carrying a high balance over a long period of time can damage your credit score and make it more difficult to get loans, and interest payments can easily add thousands of dollars to your overall bill. If you find yourself overwhelmed with your credit card debt, try these debt consolidation strategies.

Determine a Budget

The first step to sorting out your finances, says Dorothy Barrick, a financial counselor at GreenPath Debt Solutions in Troy, Mich., is working out a budget to track your current spending habits. Write out a list of your income and regular expenses, and track the leisure-related purchases, such as restaurant dinners and movies, that you've made over the last few months.

"Determine if it's a budget problem or a mismanagement problem," says Barrick. If you're simply mismanaging your finances, a budget will help you plan wiser spending decisions. "You can take control of where your money goes and where you don't want it to go."

Generate More Income

If you're truly not bringing in enough money to cover your expenses, your budget will help you recognize where the deficit is. "The first thing to figure out is if there are ways to generate income to patch that budget," says Barrick.

In some cases, this may involve taking on another job or bringing in a roommate. In others, the solution may simply involve some financial restructuring. "It can be as easy as looking at your payroll deductions to see if there's a pension contribution that could be cut back on," says Barrick.

You might also consider refinancing your mortgage and other loans with improved terms. "Find out if you can refinance your loan for a smaller monthly payment at a lower interest rate," Barrick advises.

Call Your Credit Card Companies for Help

Once you've defined your budget and know how much you can spend each month, you may even want to contact your creditors to find out if they are willing to reduce your monthly minimum payment and interest rate. "Credit card providers often offer internal hardship programs that will reduce your payment to a level that fits within your budget," says Barrick.

Such programs vary: Some may reduce rates and penalties for a period of six months to a year, while others may offer generous terms until your entire balance has been paid off. If you're having difficulty paying your credit card bills, call your provider and ask to speak with someone in the customer service department for more details about the hardship program. Make sure that you are clear on what you can afford to pay; your provider may be able to offer terms that fit within your budget.

Use a Credit Counseling or Debt Consolidation Agency

If you owe significant debts on a number of credit cards, it may be in your interest to contact a debt consolidation service for help. The agency will typically work with you to determine your financial picture, and then come up with a payment plan to help you consolidate, and eventually eliminate, your credit card debt.

Using this method, instead of making individual monthly payments to each creditor, you'll make a single monthly payment to the debt consolidation agency, which will pay your creditors. Agencies generally have the bargaining power to advocate for lower interest rates for consumers. "Typically, our interest rates range from six and a half to nine percent," says Barrick.

However, it's important to make sure that the agency you're working with is reputable. Barrick recommends checking the National Foundation for Credit Counseling website to see if the agency is listed there; if not, it may not be legitimate. Researching the company on the Better Business Bureau will also help you find out if complaints have been filed against the company.

A good debt consolidation company can provide tremendous help to consumers who might otherwise fall deeper into debt or even be forced to file bankruptcy.

"It's really a good feeling to see people who used to use their money to pay credit card bills put that money into retirement or college savings," she says. By working to manage and consolidate your credit card debt — either independently or with assistance from an agency — you’ll be able to plan a brighter future for yourself, too.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.