Is it better to stop paying credit cards or file for bankruptcy?

There are a variety of debt relief solutions credit card holders should explore besides bankruptcy. Getty Images

Credit card debt can be a significant problem, no matter how much you've accumulated. But if you're an average cardholder, that debt load is probably close to $8,000 right now. And with credit card interest rates just slightly down from a record high of 23% and the reality of compound interest making it harder and harder to pay off what you owe, you may find yourself looking at all your potential debt relief options right now. This is particularly true with the understanding that credit card interest rates are unlikely to decline materially in the near future. 

But rushing toward any debt relief option isn't a smart move now, either. With so many to choose from and each with its own set of unique pros and cons, credit card users should be strategic in their approach. That extends to credit card payment pauses and, in extreme cases, bankruptcy. So, is it better to stop paying credit cards or file for bankruptcy? While each cardholder's circumstances are different, the answer here can vary. Below, we'll break down precisely what to consider and, more importantly, what to do next. 

Start by exploring your credit card debt forgiveness options here.

Is it better to stop paying credit cards or file for bankruptcy?

While an understandably pertinent question, the answer for many cardholders is to do neither and instead take a broader look at your specific debt circumstances. Accumulating credit card debt typically doesn't happen overnight. Instead, it occurs over an extended period, thanks to a variety of factors. So getting out of this debt typically doesn't come down to something as simple as a halt to credit card payments or filing for bankruptcy. A viable solution will also need to be based on a variety of factors.

Typically, you should never simply stop paying your credit card debt. This will have wide-ranging repercussions, leading to additional penalties, expenses, potential wage garnishment and even lawsuits. On the other hand, bankruptcy is typically considered a last resort debt relief option, and it could have as powerful and long-lasting effects on your credit score as a halt to payments. So it should be approached with that understanding. That said, there are viable ways to get out of credit card debt without having to take either extreme approach. These include, but are not limited to:

Credit card debt forgiveness programs: Also known as debt settlement, this option could be ideal for those with $5,000 to $10,000 or more in debt. If you have this debt load, are already behind on payments and can provide proof of a hardship that's caused an inability to make payments, you could qualify for forgiveness. Still, this option takes years to complete and will only result in 30% to 50% of your current debt amount being forgiven, so it's important to go into the process clear-eyed and realistic.

Learn more about credit card debt forgiveness now.

Debt management programs: This debt relief type, typically offered by debt relief companies, can involve everything from assessing your financial health to negotiating with your credit card companies to establishing (and seeing through) a payment plan. Each company has its debt management program criteria and processes, however, so if you think this could work for you, it's likely worth exploring a few different servicers to determine which is most appropriate for your financial needs now.

Debt consolidation loans: A debt consolidation loan is a personal loan, typically accompanied by a much lower interest rate than what's available with a credit card. Either individually or via the assistance of a debt relief company, credit card users can then utilize the new loan to consolidate their credit card balances, making more of a dent toward the principal that's owed than they otherwise would have by making payments on a card with a much higher rate. That said, to secure a low-rate debt consolidation loan, your credit score will need to be in good shape, which may not be applicable if you're already behind on credit card payments.

Balance transfer cards: Balance transfer credit cards could also be worth exploring for some cardholders. While it may seem counterintuitive to open a new credit card while struggling with your current ones, these cards can come with a low or 0% APR for a limited time, allowing you to make payments that will go directly toward what you owe now versus toward interest that will do little to erase your debt. That said, balance transfer credit cards come with set-up fees and the low or 0% APR will only remain for a limited time, so it's critical to make the time count with this alternative.

The bottom line

For many cardholders, the question of whether it's better to stop paying credit cards or file for bankruptcy is the wrong one to ask. Instead, they should be asking themselves which debt relief solution is the right one for their individual circumstances. With multiple ones to explore but with the reality of compounding interest to deal with at the same time, it behooves cardholders to begin researching their options now. The sooner they do, the sooner they can choose an alternative that works for them and, more importantly, begin the work needed to regain their financial independence. 

Matt Richardson

Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.