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Best Way to Pay Off Credit Card Debt

Have Credit Card Debt, Collection Accounts, Payday Loans, or Medical Bills? 

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Here are Just a Few of the Major Credit Card Companies Money Fit Works With for Consolidating Debt:

The Money Fit debt management program isn’t a new loan substituting your existing debts. We’re your ally, actively negotiating with your credit card companies to alleviate your financial burden.

What is the Best Choice for Paying Off Your Credit Card Debt?

How to Consolidate Credit Card Debt the Safe and Smart Way

So many American households deal regularly with five-figure credit card debt that we seem to accept it as a fact of life. Baseball, apple pie, and credit card debt! As you already know if you find yourself among this group, credit card debt is nothing to feel nostalgic about. But whom do you turn to for help?

Family and friends are not in a position to pay off your debt, even if you could get over the stigma of asking for help. Churches and community services are often stretched to the limit. And the government (i.e., your fellow taxpayers) has little interest in helping to pay down or pay off your debts.

Where to Get Help with Credit Card Debt

As we take a look at each of these common options for consolidating and paying off credit card debt, we’ll consider them in light of the criteria noted above. Additionally, we’ll rate each option on a scale of 1 to 5 stars, with 5 being the best.

What's the difference between a legitimate debt consolidation offer and one that will just make things worse?

Legitimate debt consolidation opportunities lead to lower debt balances each month, don’t hurt your credit rating, are available regardless of the amount of debt you have, and have reasonable and regulated fees.

You’ll often find that a legitimate means of consolidating your credit card debt will be either with a nonprofit organization or through a credible banking institution.

Most lists of debt consolidation options include debt consolidation loans, credit counseling services, debt negotiations, and credit card balance transfer offers. But which of these, if any, match the criteria listed above?

It pays to remain vigilant when receiving a consolidation offer that seems too good to be true. More often than not, those offers can lead to numerous problems, many of which we’ll describe below. While it’s true that not all brand-named offers are the best choice, the fact is, if you’ve never heard of the organization and you haven’t solicited their help, be sure to do your homework before contacting them to consolidate your debt.

Credit Card Balance Transfer Offers

Total Score

★ ★ ★ ★

They seem to be everywhere, in every mailbox on every mail day. Credit card balance transfer offers. If you have a decent credit rating and carry a balance on one or more credit cards, you will likely receive these offers in your mailbox.

Credit card companies buy mailing lists from the consumer reporting agencies (aka credit bureaus) with very specific demographics: such and such a credit score, so much debt, and this many credit card accounts with balances. With such a specific understanding of their potential client base, the credit card companies know that they’ll get a fairly reasonable return of account applications.

By the way, if you’d like to opt-out of these offers, simply go to OptOutPrescreen.com and fill out the form. It takes just a couple of minutes and lasts for up to five years.

Effect on Credit Rating ★ ★ ★ ★
Applying for a new credit card can have a small, negative impact on the consumer’s credit rating. Conversely, paying down the balance can have a very positive effect on the rating. Giving in to the temptation to run the paid-off credit card balances back up to their original dollar amounts would have a very negative effect on the consumer’s credit score.
Minimum Debt Requirements ★ ★ ★ ★ ★
Most credit card balance transfers offer to carry no minimum debt amount to qualify for the offer. Many will have a maximum amount though, even if they don’t specify it in the offer.
Fees ★ ★ ★
Many consumers take advantage of 0% APR promotional offers to transfer credit card balances to a new card. If paid off before the promotional APR expires, the consumer will pay no fees or interest whatsoever. Otherwise, the consumer will be subject to paying fairly high credit card interest rates, currently averaging over 16% APR. That interest rate means that for every $1,000 balance you carry, you’ll pay $160 a year in interest.
Consistent Debt Reduction ★ ★ ★
When approved, your new credit card company will pay off your other credit card debt, leaving you with a single credit card account instead of multiple accounts. However, there’s an inherent danger to the consumer. With so many paid-off credit cards, it can be tempting to start using them again. Previous studies had shown that nearly 70% of consumers who used a credit card balance transfer to pay off other credit cards did exactly this. They consolidated their debts onto a single card and then started using their old credit cards again until they were back to their original balances within two years, effectively doubling their total debt balances. Fortunately, consumer behavior changes with the times. Because of the Great Recession and the economic downturn related to the COVID-19 pandemic, credit cardholders have seemingly begun taking a wiser approach to credit card balance transfers. Based on a relatively small survey by Experian (202 respondents), about 50% of all consumers using a credit card balance transfer will pay off their credit card balances within 18 months, usually taking advantage of a promotional 0% APR during that timeframe.

Debt Consolidation Loans

Total Score

★ ★ ★

Debt consolidation loans are personal loans that are used to pay off other debts. Debt consolidation loans can be difficult to qualify for since you are essentially asking the new lender to take on all the risk that has been previously spread out among several credit card companies. They look and act a lot like credit card balance transfers except that you typically can’t continue to use the loan to make additional payments in the future.

Effect on Credit Rating ★ ★ ★
Applying for a debt consolidation loan will likely have a small, negative effect on the borrower’s credit rating. Still, transferring the balance to a new account and paying down the balance can positively affect the consumer’s utilization rate, leading to a better credit score. However, if the borrower runs their old credit card balances back up, their credit score will likely suffer.
Minimum Debt Requirements ★ ★
Most banks and credit unions don’t want to waste their time working on small loans. There’s no money to be made on loans of just a few thousand dollars. Some states even set minimum loan amounts.
Fees ★ ★ ★
Besides the expected and hopefully reasonable interest rate, most debt consolidation loans come with origination fees that can range from 0% up to 10% of the amount loaned.
Consistent Debt Reduction ★ ★
Similar to using credit card balance transfers to pay off credit card debts, there’s nothing keeping the consumer from running their paid-off credit cards back up to their original balances. If the consumer exercises a great deal of self-discipline and can qualify for a debt consolidation loan, they can see significant debt reduction within a matter of six to twelve months. Otherwise, they may subject themselves to the devastation of doubling their debt by running their old card balances back up.

Nonprofit Credit Counseling Services

Total Score

★ ★ ★ ★ ★

Credit counseling agencies have existed almost from the moment the credit card was invented. As long as there have been credit cards, there has been a need for a trusted third party to help people get out of credit card debt. These organizations specialize in consolidating and paying off credit card debt, along with other unsecured debts.

Effect on Credit Rating ★ ★ ★ ★
The main credit score modeling company, FICO, has clearly stated that participation in any sort of credit counseling is not a factor in the consumer’s credit rating. That said, because the participating creditors close the credit cards to any potential future use by the consumer, this may have an initial negative effect on the consumer’s credit rating. However, the consumer’s credit cards were already maxed out, there may be no effect whatsoever. Regardless, the subsequent balance reduction will do nothing but improve the consumer’s credit rating.
Minimum Debt Requirements ★ ★ ★ ★ ★
Credit counseling agencies have no minimum debt balance they require of their clients. While it may not make sense to use a debt management program if you have just a few hundred dollars of credit card debt, it’s nice to know you have the option. After all, even a few hundred dollars can feel painful at high-interest rates.
Fees ★ ★ ★ ★
Credit counseling agencies are regulated by various federal and state agencies. In fact, each state regulator can set a different maximum fee that credit counseling agencies can charge. These fees never reach unreasonable levels and will vary depending upon the amount of debt or the number of accounts you include. All are capped and clearly stated during the counseling session.
Consistent Debt Reduction ★ ★ ★ ★ ★
Credit card accounts placed on a credit counseling agency’s debt management program will close to further use. Additionally, the agency negotiates lower interest rates with the credit card company, often in the 2% to 6% range. This means that the majority of every monthly payment goes to lowering the consumer’s debt balance and that there’s no chance of the consumer using those cards to continue building or growing their debt. That’s real credit card debt relief.

Debt Settlement

Total Score

★ ★

Also known as debt negotiators, this service asks their clients to stop making payments to their creditors and to pay them instead. After a year or two, if the consumer has not been taken to court by the creditors already, the negotiator will then attempt to force the creditor to accept 50% of the balance owed instead of 100%.

Effect on Credit Rating ★
Besides a bankruptcy, the resulting charge off from debt negotiations will typically hurt your credit score more than any other event. Additionally, it will continue to negatively affect your credit score for the next seven years.
Minimum Debt Requirements ★
Most debt negotiators require their clients to have a minimum of $10,000 before they will even consider working together. That means that if you have $9,000 of credit card debt, debt settlement services are not even an option.
Fees ★
While fees range from agency to agency, most will charge a setup fee and a monthly fee for managing your accounts. Generally, you can expect to pay at least 25% of the charged-off amount. That means that if you have $10,000 of credit card debt settled for $5,000, you will have to pay the debt negotiator at least $1,250. Additionally, the IRS will also want to get involved, considering such settled amounts as taxable income. If you find yourself in the 20% tax bracket, you’ll pay an additional $1,000 in federal income tax. That means you’ll end up paying at least $7,250 to settle a $10,000 debt. Hardly the 50% they advertise.
Consistent Debt Reduction ★ ★ ★
When successful, which happens very infrequently, the consumer actually experiences a dramatic decrease in the debt they owe. However, this tends to be the exception rather than the norm.

Each debt consolidation method has its own advantages and disadvantages. That said, some have disadvantages that far outweigh their advantages. Others are not available to the majority of consumers who would benefit from them. When considering your options, be sure to understand how likely you are to qualify and how each method will affect your debt and your credit.

Rating Scale

1 - 20 percent: One Star

★

21 -40 percent: Two Star

★ ★

41 - 60 percent: Three Star

★ ★ ★

61 - 80 percent: Four Star

★ ★ ★ ★

81 - 100 percent: Five Star

★ ★ ★ ★ ★

Best Way to Pay Off Credit Card Debt
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© 2024 Money Fit by DRS
6213 N. Cloverdale Rd, Suite 130, Boise, ID 83713
Money Fit is a nationwide nonprofit 501(c)(3) organization. We do not lend money.

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Client Credit Report Authorization

You hereby authorize and instruct Debt Reduction Services, Inc. (DRS, dba Money Fit by DRS) and/or its assigned agents to:
  • Obtain and review your credit report, and
  • Request verifications of your income and rental history, and any other information deemed necessary for improving your housing situation (for example, verifying your annual property tax obligations and homeowner’s insurance fees)
Your credit report will be obtained from a credit reporting agency chosen by DRS. You understand and agree that DRS intends to use the credit report evaluate your financial readiness to purchase or rent a home and/or to engage in post-purchase counseling activities and not to grant credit. You understand you may ask any questions pertaining to your credit report. However, while DRS will review the information with you, the company is not able to furnish you with a copy of your credit profile. You hereby authorize DRS to share your information from your credit report and any information that you provided (including any computations and assessments produced) with the entities listed below to help DRS determine your viable financial options.
  • Banks
  • Counseling Agencies
  • Debt Collectors
  • Landlords
  • Lenders
  • Mortgage Servicers
  • Property Management Companies
  • Public Housing Authorities
  • Social Service Agencies
Entities such as mortgage lenders and/or counseling agencies may contact your DRS counselor to evaluate the options for which you may be eligible. In connection with such evaluation, you authorize the credit reporting and/or financial agencies to release information and cooperate with your DRS counselor. No information will be discussed about you with entities not directly involved in your efforts to improve your housing situation. You hereby authorize the release of your information to program monitoring organizations of DRS, including but not limited to, Federal, State, and nonprofit partners for program review, monitoring, auditing, research, and/or oversight purposes. In addition, you authorize DRS to have your credit report pulled two additional times to conduct program evaluations. You also agree to keep DRS informed of any changes in address, telephone number, job status, marital status, or other conditions which may affect your eligibility for a program you have applied for or a counseling service that you are seeking. Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.

Client Privacy, Data Security, and Client Rights Policy

NOTE: This sheet is to inform new or returning clients about our services, records, fees, and limitations that may affect you as a consumer of our services. This form also discloses how we might release your information to other agencies and/or regulators. If you do not understand a statement, please ask a Debt Reduction Services (DRS) counselor for assistance.

Debt Reduction Services, Inc. (DRS) has put into place policies and procedures to protect the security and confidentiality of your nonpublic personal information. This notice explains our online information practices and how we use and maintain your information to conduct our financial education and credit counseling sessions and to fulfill information and question requests. This privacy policy complies with federal laws and regulations.

To provide our financial education and credit counseling services, we collect nonpublic personal information about you as follows: 1) Information we receive from you, 2) Information about your transactions with us or others, and 3) Information we receive from your creditors or a consumer reporting agency. We do not share this information with outside parties.

We use non-identifying and aggregate information to better design our website and services, but we do not disclose anything that could be used to identify you as an individual.

You hereby authorize DRS, when necessary, to share your nonpublic personal, financial, credit, and any information that you provided (including any computations and assessments produced) with the following entities in order to help DRS provide you with appropriate counseling or guide you to appropriate services: third parties such as government agencies, your lender(s), your creditor(s), and nonprofit housing-related and other financial agencies as permitted by law, including the U.S. Department of Housing and Urban Development.

To prevent unauthorized access, maintain data accuracy, and ensure the correct use of information, we have put in place appropriate physical, electronic, and managerial procedures to safeguard and secure the information we collect online. We limit access to your nonpublic personal information to our employees, contractors and agents who need such access to provide products or services to you or for other legitimate business purposes.

Debt Reduction Services, Inc. complies with the privacy requirements set forth in the HUD housing counseling agency handbook 7610.1 (05/2010), including the sections 2-2 Mc, 3-1 H(2), 3-3, 5-3 F, and Attachment A.5. At all times, we will comply with all additional laws and regulations to which we are subject regarding the collection, use, and disclosure of individually identifiable information.

  1. Services: DRS provides the following housing-related services: counseling that includes Homeless Assistance, Rental Topics, Pre-purchase/Homebuying, and Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase); Education courses that include Financial literacy (including home affordability, budgeting, and understanding use of credit), Predatory lending, loan scam or other fraud prevention, Fair housing, Rental topics, Pre-purchase homebuyer education, Non-delinquency post-purchase workshop (including home maintenance and/or financial management for homeowners), and other workshops not listed above.

Please refer to DebtReductionServices.org for details of our services.

  1. Limits: Our services are limited to our normal weekday business hours. We do not provide individual counseling or education services after hours or on weekends, although our education courses are available 24/7.
  2. Fees: We do not charge fees for our financial management counseling and education. However, if you use them, you may have to pay for our Debt Management Program, Student Loan Counseling, Bankruptcy Certificate Services or certain financial education courses (homebuyer education, rental topics, fair housing, predatory lending, and post-purchase-non-delinquency including home maintenance and/or financial management for homeowners).
  3. Records: We maintain records of the services you receive, including notes about your progress or other relevant information to your work with us. You have the right to access and view your records by making a request to your counselor.
  4. Confidentiality: We respect your privacy and offer our services in confidence with the understanding that we may share such information with auditors and government regulators. Certain laws or situations may also lead to disclosing confidential issues, such as those involving potential child abuse or neglect, threats to harm self or others, or court subpoenas.
  5. Refusal of Services: You have the right to refuse services without any penalty or loss.
  6. Disclosure of Policies and Practices: You will be provided our agency disclosure statement.
  7. Sharing of Information: Sometimes we will need to contact other agencies or we may need to share your information, including your records, with other agencies or with regulators. We will do this only if you sign this form that gives us permission except for limited reasons; please see # 5 above for examples of such situations.
  8. Other: You have the right to be treated with respect by our staff, and we expect the same from you in return. We encourage you to always ask questions if something is not clear. We also encouraged you to express your thoughts and advocate throughout our services.

You acknowledge that this authorization will remain in effect for the duration of time that DRS serves as your housing counselor or financial education provider. You also acknowledge that should you wish to terminate this authorization, you will notify DRS in writing.

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Disclosure  Statement

NOTE: If you have an impairment, disability, language barrier, or otherwise require an alternative means of completing this form or accessing information about our counseling services, please communicate with your DRS representative about arranging alternative accommodations.

Program Disclosure Form

Disclosure to Client for HUD Housing Counseling Services

Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
  • Home Equity Conversation Mortgage (HECM) Counseling (RMC): Via telephone and virtual platforms, we offer the required HECM counseling nationwide in addition to in-person counseling in Boise, Idaho. We also offer in-home counseling options in thirty counties across southern Idaho for an additional fee to cover our travel and additional staff time costs.
  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
  • A Debt Management Program (DMP) for consumers struggling to pay their credit cards, collections, medical debts, personal loans, old utility bills, and past-due cell phone accounts;
  • The Budget Briefing and Debtor Education Certificates that are required during the Bankruptcy filing process;
  • A Student Loan Repayment Plan Counseling and application service.

Relationships with Industry Partners

Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

No Client Obligation

The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.
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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).