Worried about defaulting on your credit card debt? Here’s what to do

With credit card interest rates sitting at a record high of nearly 23% — and retail credit card rates surpassing 30% — many cardholders are feeling the financial squeeze. But while today’s high credit card rates are putting extra pressure on many cardholders, they’re not the only factor at play right now. After years of stubborn inflation, high consumer goods prices are also having an impact on people’s finances, making it hard for many to keep up with their growing credit card balances. 

This has led to a notable increase in delinquent credit card payments recently, which is a clear indication that more people are having difficulty managing their debts. But while it might seem tempting to stop paying your credit card bills altogether when you’re in financial distress, defaulting on your credit card debt can have severe consequences. 

Luckily, there are alternatives worth exploring before taking such a drastic step. If you’re at risk of defaulting on your credit card debt, you may want to consider the below alternatives before it gets worse. 

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What to do to avoid defaulting on your credit card debt

Here’s what you may want to do before you stop paying your credit card debt.

Ask your card issuers for help

One of the first steps you should take when you’re at risk of defaulting is to reach out to your credit card company directly. If you’re upfront about your situation, many credit card issuers will work with you, as it’s in their best interest to recoup the debt rather than deal with the cost and time of collections or write-offs.

While it might feel intimidating to call a creditor, especially if you’re behind on payments, the hardship programs they offer are specifically designed to help cardholders in financial distress. The availability of these programs can vary, but they generally provide relief in the form of temporarily reduced interest rates, fee waivers or adjusted payment schedules. That could help you get back on track and avoid fully defaulting on what you owe.

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Enroll in a debt management program

Enrolling in a debt management plan through a credit counseling agency could help you avoid defaulting in certain cases. When you enroll in a debt management program, the credit counselor negotiates with your creditors on your behalf, typically to lower your interest rates or have certain fees waived. The program will also help you establish a manageable repayment plan, which typically lasts between three and five years.

A debt management program can offer much-needed structure for those feeling overwhelmed by multiple credit card payments and high interest rates. While you’ll typically be required to close your credit card accounts while in the program, sticking with it can help you avoid default and put you on the path toward becoming debt-free. 

Try to consolidate your debt

Debt consolidation allows you to combine all your existing credit card debt into a single loan, ideally at a lower interest rate. This can simplify your payments and reduce the total amount of interest you’ll pay over time. And while consolidating your debt won’t eliminate it, it can make the repayment process easier by giving you a single, fixed monthly payment. 

To qualify for a debt consolidation loan, you generally need a decent credit score and a stable income, so this may not be the right option for everyone — but it could provide enough relief to make your payments more manageable. This option can be especially appealing for cardholders who are dealing with multiple high-interest-rate cards and want to streamline their repayment efforts.

Negotiate a settlement

If you cannot feasibly repay your entire debt with another method, you may be able to negotiate a debt settlement (also known as debt forgiveness) with your creditors instead. This involves offering a lump-sum payment that is less than what you owe in exchange for having the remainder of the debt forgiven. While it varies, in many cases, debt settlement could cut down on what you owe by 30% to 50% — making it much easier to get rid of your credit card debt.

This option typically makes the most sense for cardholders who are facing serious financial difficulties because it resolves the debt without the long-term legal and financial consequences that default entails. That said, debt settlement should be approached with caution, as it can impact your credit score and creditors aren’t obligated to accept your offer. Settling your debt for less than you owe can also result in extra tax liabilities, as the IRS may consider the forgiven amount taxable income. 

The bottom line

If you’re facing a mountain of credit card debt, defaulting may seem like your only option, but there are alternatives to help you regain control of your finances without suffering the severe repercussions of default. From hardship programs to debt consolidation and debt settlement, each option comes with its own set of advantages and considerations, so be proactive and compare your options before letting the situation get worse. The key is to find a solution before your situation spirals further so that you can preserve your financial health.