In credit card debt? There’s a path out

0:00You're listening to Life Kit from NPR.

0:06Hey, it's Marielle. Okay, raise your hand if you have credit card debt. If we were in a room together, I'd guess about half the hands would go up. According to a 2025 bank rate survey, about 46 % of respondents were carrying a balance on a credit card from month to month. So it's common, right? The credit bureau, TransUnion, puts the average credit card balance at about$6 ,300. That can feel like a lot to get out from under, especially if your budget is already tight. And then if you're paying 20 % interest or higher, and that's common for credit cards, that pile of debt just grows and grows. But there is a path out of credit card debt.

0:48And on this episode of Life Kit, I'm going to share five takeaways that will help you find that path. We'll talk about how to use credit cards to your advantage, how to negotiate with your card issuer and get on a payment schedule you can actually follow, and what to do if your debt ends up in collections. Also, I want to say LifeKit just launched a newsletter series on this topic. It is packed with information and will give you a step-by-step plan so you can crunch the numbers, map out your payments, and ultimately stay off the hamster wheel of credit card debt. You can sign up at npr.org slash credit card debt.

1:31All right, I want to start with the elephant in the room. You may think, or you may have been told, that it's a bad idea to have a credit card. Maybe you grew up in a family that struggled with debt. Or maybe you just don't know if you can trust yourself to keep your spending under control when you've got that tempting piece of plastic in hand. But credit cards can be an incredible tool, and they can help you build wealth if you use them the right way. And they can also be very damaging when used poorly. Yaneli Espinal is a financial educator and the author of Mind Your Money. The credit card itself doesn't have any kind of inherent like it's good or it's bad.

2:09It's the usage of that card. And who's using that card is you. So it's all on you to use it correctly in a way that is going to help you financially in the long run. So takeaway one, you don't need to avoid credit cards forever. In fact, it's ideal to have at least one credit card in good standing. John Kiernan is the managing editor of the personal finance website WalletHub. Everyone should have a credit card simply because owning the credit cards that's in good standing will send positive information to the credit bureaus, which will make your credit report look better and then in turn lead to a better credit score, which helps you save a lot of money and opens a lot of doors for lending.

2:50As a reminder, your credit score is like a financial version of a report card or a GPA. And if at some point you want to borrow money to buy a car or a house or to start a business, you're going to need to show your credit score and your credit history. A credit card helps you build that and so ultimately build wealth. Like Yaneli said, though, there's a way to use credit cards to your benefit and a way to use them that'll leave you stuck in a debt hole. So here's the ideal scenario. You want to pay off your full credit card statement balance every month. That's a readout of what you spent in a one-month period at the time your billing cycle closed.

3:28That is the full amount that you need to pay by the due date if you want to avoid interest charges. If you don't pay that amount by the due date, that's known as carrying a balance on your credit card. Now, we understand a lot of folks carry a balance out of necessity. Credit cards have become a lifeline for them. Raquel Villagra is an attorney at the New Economy Project, a nonprofit in New York City that works with people who are not making a living wage. The way our economy is structured, people take on debt just to pay for basic living expenses. Whatever the reason, if you are carrying a balance on a credit card, you can come up with a debt payment plan, and we'll get to that.

4:06But the other thing you want to do in the meantime, if you can, you should always make your credit cards minimum payments. The smallest amount you're required to pay each month to keep your account in good standing The minimum payment can be a fixed dollar amount, maybe$25, or a small percentage, like 2 % of the total you owe. If you don't pay this amount, that will hurt your credit score. You'll also be charged late fees and your debt could be sent to collections. So make this a priority. You can set up automatic payments for just the minimum amount so you don't forget. Okay, our next takeaway is about paying back your credit card debt.

4:44When you have a lot of debt that you want to get off your back, your instinct might be to use all the money you have to pay it off. Rita Soledad Fernandez Paulino is the CEO of Wealth Para Todos, and she says this is unfortunately a mistake. So if you take all your cash, pay off the credit card, it's only a matter of time before you're going to get into debt again. Think about it. If you don't have savings, the next time your car breaks down or your computer dies or you get sick, you're going to put that expense on a credit card. So takeaway two is to build an emergency fund, even if you have existing credit card debt.

5:20An emergency fund is meant for unexpected expenses. Like your tires go out. You have a family member who needs a flight to go back home. You can also use the money from this fund if you lose a job to tide you over until you find a new one. One target financial planners often give is that you should have enough money in your account to survive for at least three months. To figure that out, calculate your monthly expenses, including rent and food and debt payments. Add that total up and let's say that it's$2 ,000. Then you want to save at least three months of$2 ,000, which would be$6 ,000. That's like the minimum amount that you should have saved for unexpected expenses.

6:05Again, I want to acknowledge this is not easy for a lot of folks. Only 55 % of respondents to a Federal Reserve survey said they had three months of emergency savings. But this is something to aim for. One thing that could help here, while you're looking at your expenses, also look at your income. Is there anything left over every month? Even$10? Set aside what you can. Okay, takeaway three. It helps to come up with a debt payment plan, considering the interest rates of your credit cards. There are two common approaches to paying off credit card debt, the avalanche method and the snowball method.

6:44The avalanche method means that you pay off the card with the highest interest rate first. If you do this, you'll save money on interest over time. So if you have one credit card with a 17 % interest rate and another with a 25 % interest rate, you would start by paying the 25 % card. With the snowball method, on the other hand, you pay off the card with the least money on it first. You get some quick wins, and that can feel good for somebody who has a hard time sticking to a long-term plan. This is a better approach if your credit cards have similar interest rates, so using the avalanche method wouldn't really make a difference.

7:18Next, you're going to decide how much you can put toward your credit card debt each month and make that payment a part of your budget. Yaneli says maybe you tell yourself, I'm going to pay$50 every month for the next 10 months, and then I'm going to be debt-free in 10 months. And that's going to be incorporated into one of the categories in your budget is pay back my loan,$50 every month. And you'll put that in for the next 10 months. One other tip on creating a debt payment plan is to try a balance transfer. That's when you roll over your debt to another credit card with a 0 % interest rate for some period of time.

7:52It could be a year, a year and a half, so that you're just paying the amount you already owe. And you can pay that off much quicker and much less of an expense. These cards will usually charge a one-time balance transfer fee of 3-5 % of your total balance, but this is still a good deal if you pay off the debt within the 0 % interest period. If you can't find a deal like this, you could look for a card with a lower interest rate than your current one and pay off your high interest card with that new lower interest card. You'll still owe that$500 or whatever it is, but you'll be paying less in interest.

8:29Speaking of interest rates, did you know that yours are not set in stone? That's our takeaway four. Your credit card terms, including the interest rate, the due date, and the monthly payments, are often negotiable. Let's walk through a few scenarios. Say you have a balance on your credit card. You can actually call your card issuer and ask them to lower your interest rate. I talked to financial journalist Stacey Vanek-Smith about this. You can say things like, I've been a really loyal customer for X number of years, or I've made all on-time payments, or I'm trying to get my credit in order. Like, I'd love to continue being your customer, and I'd love for this relationship to continue.

9:05What are some options that I have? Find out what's possible first. If they say no, look around for other credit cards that offer lower rates. But if you find a card that has a lower interest rate, you can call the card that you have and say, listen, I found this competitor. They're willing to offer me a credit card for X percent. I'd love to stick with you guys. Can you match it? Okay, another scenario. You find that your credit card due date is at an inconvenient time of the month, maybe because you have a lot of other bills due then. You can call the credit card company and ask them to change the date to something that's better for you, like right after you get paid.

9:40All right, a third scenario. You're having trouble making your monthly credit card payments. Yaneli says, call your card issuer. If the payment due date is coming up and you don't have the money, call them, pick up the phone, and call the phone number on the back of your credit card. Explain your situation, that your payment due date is coming up and you don't have the money. Can you help me? Can you either lower the amount I have to pay or can you change the due date a little later so I can maybe pick up an extra shift and come up with the money in a few weeks? If you don't call them and tell them, they're going to think that you're trying to not pay them and also not let them know.

10:15And that's when it takes, you know, a really bad hit to your credit score. Credit cards often have programs for folks who are dealing with financial hardship. Ask if they offer a credit card hardship plan. They might lower your monthly payments or allow you to postpone payments for a year. One other point here, if you do miss a minimum payment, you want to get in touch with the card issuer before your debt goes to collections. We'll have more on collections after the break.

10:45Okay, we're back talking about credit card debt. Takeaway five is that if your debt does end up in collections, you have rights. Let's talk about what happens when you stop paying your credit card bills. Once you've missed several minimum payments, usually after 180 days or more, you go into default. Raquel Villagra from the New Economy Project says your lender might write off your debt as a loss, and that's known as a charge-off. This is not a process that forgives the debt. We hear from a lot of people about this. It can be a confusing point that they might recognize a debt, but they say, oh, no, but it was charged off, so I don't have to worry about it.

11:23But that's not the case. Charge off is just something on the accounting side of things that the creditor has to do. Your lender might also send the debt to collections. So an original creditor like a bank might hire a debt collection agency to help try to collect on the account. And this is where things can get confusing and overwhelming for people because they might start receiving letters from companies they've never heard of about an account that they're not necessarily familiar with. Or even if they are familiar with the account, they don't necessarily agree with the amount that's being claimed.

11:59Under federal law, the Fair Debt Collection Practices Act, a debt collector must send you a letter called a debt validation letter within five days of their first contact with you. That should say what you owe and who the creditor is and also state that you have the right to dispute the debt. If for some reason you don't get that letter, another way you might find out about your debt going to collections is if you look over your credit report, which experts recommend you do every year, and you see a debt listed under a company you don't recognize. But let's say you do get a notice or you start getting calls from debt collectors.

12:31Raquel says, first of all, don't have conversations with debt collectors over the phone. And especially don't give them any personal information like your social security number or your birth date. There's so many scammers out there pretending to be collections agents. Debt collectors can be extremely pushy. They might try to pressure you into agreeing to make payments when you don't even really have all of the information in front of you. And so for that reason, we recommend keeping communications with debt collectors to written communication. When a debt collector reaches out, ask yourself, do you recognize this debt?

13:10Is this from a purchase you made or a loan you took out? Have you already paid this debt off? So much of the time, people are hearing from debt collectors and they just don't have basic information about what the debt is. Your debt can also end up in collections because of a mistake. You know, you already paid that bill or you were never billed for that service, and yet you get a letter from a debt collector. If you don't recognize the debt or you think it's inaccurate, the Consumer Financial Protection Bureau recommends that within 30 days, you send a letter to the debt collector asking for more information.

13:4130 days because you have more legal rights within that period. The agency has sample letters you can download on its website, and they're super helpful. Under federal law, you also have the right to dispute a debt with a debt collector. For any number of reasons, including if you don't recognize the debt, if you disagree with the amount that they're claiming, if you have other bases for disagreeing that you owe the debt. The CFPB has template letters for that, too. Another right you have is to tell a debt collector to stop contacting you. Having a debt collector stop contacting you doesn't make the debt go away.

14:17The debt is still out there, but the cease contact can still be a huge relief for people who just need a pause to wade through everything that's going on and, you know, figure out their situation. Again, Raquel recommends sending the debt collection agency a letter because then you've got a paper trail. And the letter can be as simple as, you know, I'm contacting you about XYZ account and I request that you stop contacting me. They have to honor that request because of the law. They might not. They might violate the law. We have seen that happen, but it is something that they're required to do.

14:52Once a debt is in collections, Raquel says you can still try to negotiate it down with the debt collector. And sometimes collectors will give up if they think there's no way they're going to get the money from you. A lot of the people that we work with through our hotline, it's unlikely that your income situation is going to change. And we have seen that people, if they let the debt collector know, the debt collector may make the assessment that this person is not somebody that we can collect from and it's not worth the resources to pursue them. Now, I wouldn't say you want to rely on this happening.

15:24And ideally, your debt never ends up in collections at all. But this is all to say you do have rights when it comes to debt. Like we said at the beginning, we get into credit card debt for all different reasons. We're hoping to give you the tools to get it under control. If you want more help and a deeper dive, we have a detailed guide coming out today in our Credit Card Debt newsletter series. That'll give you a step-by-step plan so you can crunch the numbers, come up with a payment schedule, and stay out of credit card debt. You can sign up at npr.org slash credit card debt. Okay, time for a recap.

16:03Takeaway one, you don't need to avoid credit cards forever. In fact, it's ideal to have at least one credit card in good standing. Takeaway two, build an emergency fund, even if you have existing credit card debt. Takeaway three, come up with a debt payment plan, considering the interest rates of your credit cards. Takeaway four, your credit card terms, including the interest rate, the due date, and the monthly payments, are often negotiable. And takeaway five, if your debt does end up in collections, you have rights. That's our show. This episode of Life Kit was produced by Claire Marie Schneider and Sylvie Douglas.

16:40Our visuals editor is Beck Harlan, and our digital editor is Malika Garib. Megan Cain is our senior supervising editor, and Beth Donovan is our executive producer. Our production team also includes Andy Tegel and Margaret Serino. Engineering support comes from Ted Meebane, with fact-checking by Sarah Knight. I'm Mariel Segarra. Thank you for listening.