A Man Says He Paid Off Over $40,000 in Credit Card Debt. Here's How

Ivan Pelaez had just graduated from university and was trying to start a new business with family members when he started racking up significant credit card debt.

"My credit card bill was about $60,000 spread out across three credit cards," he said.

When the business venture went south, Ivan said he found himself in a difficult situation.

"You're making all these really high payments with no income," he said. "It was a very stressful time … just trying to hit $1,000, $1,500 just of interest payments and minimum payments."

Ivan said he eventually came to the realization he needed help.

"I just ran the numbers," he said. "It just became crystal clear that when I did find a job … that what I was actually going to be making was not going to be nearly enough to be paying or making these payments, which were not even reducing the debt that I had."

After doing some research, Ivan decided to get that help through Money Management International, a non-profit credit counseling agency.

"For the average client that we see, they carry about $18,000 in credit card debt when they come to us," said Thomas Nitzsche, a spokesperson for MMI. "That means about $4,500 in added interest if they just make the minimum payments."

Rising interest rates are making getting out of debt even harder. On Wednesday, the Federal Reserve raised its key federal funds interest rate by a quarter of a percentage point, the 10th consecutive increase in recent months. With each rate increase, variable interest rate debt like credit cards, becomes more expensive.

“Card rates are at the highest rate that they’ve been as long as Bankrate has been tracking that information and for people who have blemished credit, that interest rate goes higher, even up to 30 percent on average,” Nizsche said. “That makes it almost impossible to pay down those balances if you’re somebody that’s not able to really aggressively make those payments.”

Nitzsche said they have recently seen a significant rise in the number of people ages 18 to 29 looking for help.

"In the first two months of this year, we've actually seen a twofold increase versus the first two months of last year," he said.

Nitzsche said if you're looking to get out of debt, you need to avoid making just minimum payments. If you have good credit, consider taking advantage of a zero balance transfer offer or a debt consolidation loan.

"The pitfall there for many of our clients is we see them do a balance transfer but then they don't get it paid off within that promotional period and then the interest rate goes back up," Nitzsche said. "And then unfortunately many clients also continue to use the cards that they paid off … So it's really important to be very careful and to try to limit any spending on credit while you're trying to aggressively be paying off debt."

Ivan paid $50 a month for the service, which negotiated a lower interest rate and set him up on a repayment plan that allowed him to pay off over $40,000 in credit card balances in less than five years. The 32-year-old said he made his last monthly payment of $776 late last year.

"Imagine just having almost a thousand dollars overnight just available to you," he said. "Now I finally feel like I'm in a position to start saving."

Ivan said his accounts were closed as part of the repayment process. And even though he was worried about how that would impact his credit score, he said now that he's paid everything off, his credit score has made a comeback.

If you're looking to learn more about whether using a credit counseling agency is a good option for you, the National Foundation for Credit Counseling and the Financial Counseling Association of America are good places to start.
The Department of Justice also has a list of approved credit counseling agencies. You can check them out here.