Credit card delinquencies are rising: 4 ways to pay off what you owe

As ongoing inflation continues to impact the cost of housing, fuel, food and other consumer goods  — and, in turn, puts a heavier burden on millions of people's wallets — credit card delinquencies are rising, a new report from the New York Fed shows. According to the latest Quarterly Report on Household Debt and Credit, released on May 14, the total household debt in the U.S. increased by about $184 billion in Q1 2024, hitting a total of $17.69 trillion, And, nearly 9% of credit card debt went delinquent during that time.  

What that uptick in credit card delinquencies indicates is that more and more Americans are now struggling to keep up with their debt payments amid a higher cost of living. And, that makes sense, considering that the average person currently has about $8,000 in credit card debt and the average credit card rate is over 21%. Rates that high can cause the interest charges to add up quickly.

So what can you do if you're one of the many cardholders whose credit card debt has gone delinquent — or soon will? Well, the good news is that you have options aside from getting further behind on your payments. Below, we'll break down what you may want to consider doing in these situations.

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Credit card delinquencies are rising: 4 ways to pay off what you owe

If you're trying to tackle a high amount of credit card debt or are worried about going delinquent on your credit card bills, here are a few options that may be worth considering right now: 

Lower your interest rate or get new terms with a debt management program

If you're struggling to keep up with the minimum payments on your credit cards due to high interest rates, you may benefit from enrolling in a debt management program with the right debt relief company. When you enroll in this type of program, the experts at the debt relief company you choose will work to negotiate new rates or terms with your creditors. If the negotiations are successful, the lower rates or better terms will typically result in lower credit card payments each month, making it easier for you to pay off what you owe.

There is a caveat, though. You'll typically be required to close your credit card accounts as part of the agreements with your credit card companies, so if you plan to use your credit in the future, this may not be the best route. But if you can deal with closing your card accounts, a debt management program can be a smart way to lessen the load from your high credit card balances. 

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Get rid of a portion of your balance with debt settlement

Another option you may have in this situation is debt settlement, also known as debt forgiveness. With a debt settlement program, you work with a debt relief expert who tries to negotiate with your creditors to get a portion of your total balance forgiven, meaning that you'll pay less in total on what you owe.

When you enroll in this type of program, you'll stop paying your creditors each month and will instead make monthly payments directly to the debt relief company (based on what you can afford). That money will be held in a special purpose account until enough has accrued to start the negotiation and settlement process. 

If the negotiations are successful, your creditors will be paid the agreed-upon settlement amounts. This wipes out your credit card debt, but it's worth noting that it also negatively impacts your credit score, at least temporarily. And, the forgiven portion of your debt is also considered taxable income by the IRS, so it's important to take that into account as well.

Pay less interest with a debt consolidation loan

If you have good credit and a solid borrower profile, you may have the option to use debt consolidation to pay off what you owe. When you consolidate your debt, you roll your credit card balances (and other debts) into one lump-sum loan, ideally with a lower interest rate. This allows you to pay less in interest while streamlining your payments. 

You typically have a few different options for debt consolidation, including a debt consolidation loan, using your home equity for debt consolidation or even a debt consolidation program offered by a debt relief company. But whatever you choose, the result is typically the same: one monthly payment and a lower interest rate that results in lower interest charges. 

Start over by filing for bankruptcy

If you find that you still can't meet your credit card debt obligations with any of the options above, you also have the option to file for bankruptcy and wipe the slate clean. By doing this, you either restructure your debts or have them discharged by a bankruptcy court. This route can be a way to reset fully when you're in over your head with your credit card debt.

As you may expect, though, it comes with some serious ramifications. The main is that bankruptcy will impact your credit for seven to 10 years on average, making it difficult to borrow money if you need to during that time. The court and attorney fees can also make it costly, so this should typically be a last-resort option.

The bottom line

Credit card delinquencies are rising in today's inflationary environment, and if you're one of the many who's struggling to keep up with your high-rate debt right now, you may be looking for solutions. Luckily, you have a few to choose from, including debt forgiveness, debt management, and debt consolidation — and if you're in over your head, bankruptcy may be worth considering, too. But before you make a decision, just be sure to do your homework, watch out for red flags and take the time to choose the best option for your situation. That way, you can get rid of your debt burden in the fastest and most efficient way possible.