Credit Card Blues
For the average American family, debt,
and especially credit card debt is spiraling out of
control at a record pace. The average household credit
card debt has risen dramatically from $3000 in 1990
to over $8000 today. Personal bankruptcies are also
at an all time high, prompting Congress to consider
a radical bankruptcy law overhaul, designed to weed
out those who are merely taking advantage of the system
loopholes while directing many to more palliative
alternatives such as a debt management program.
Of course some debts are considered
necessary and indeed wise choices. For instance, few
if any could afford a house if we had to wait until
we could buy it outright. Generally speaking, a home
is an asset that, over time, appreciates in value.
Another debt that makes sense is a student loan. All
data points to a direct correlation between income
and educational level. However, what about that big
screen TV you really didnt need, or that new car when
a used one would have served the same purpose and
not have created a financial nightmare. We need to
start telling ourselves NO!
According to the experts at The Credit
Counseling Foundation, Inc. (www.GoDebtFree.com),
statistics show that about 60% of all credit card
holders do not pay off their entire balance each month.
With average interest rates still hovering around
15%, this increases the cost of everything you buy
by at least 15%. And if you are only making the minimum
payment, you could be looking at 20-30 years to pay
off that balance depending on your interest rate.
Minimum payments are designed to cover mostly interest,
thereby keeping the holder chained to their credit
card debt. One may ask with interest rates at 30 year
lows why are credit card interest rates still so high?
Simply put, there are no regulations on credit card
interest rates requiring that they mirror prevailing
interest rate indexes. Along with late fees, user
fees and penalties, these interest rates, which can
be greatly increased due to just one single late payment,
are all implemented to generate tremendous revenues
for the issuers, while at the same time creating a
situation of unwanted indentured servitude for the
debtor.
When faced with this overwhelming problem,
what is one to do? Well the first line of attack is
to cut up all credit cards. Only buy what you can
afford to pay for in full. If you decide to keep a
credit card, pay it off every month. This may sound
like basic, common sense advice, but what about the
average Joe who has already accumulated too much debt
and cannot pay it off? If you are extremely disciplined
and have the extra cash, you may want to formulate
a plan to pay off the higher interest cards first.
For most us who neither have the cash flow nor the
self-discipline to adhere to such a plan, or don't
want to lose the built up equity in our home by taking
out a line of credit or re-financing which, by the
way, could put the family home at risk should future
financial setbacks occur, a good alternative would
be to use a non-profit 501 (C) (3) credit counseling
service. These companies can afford their clients
many benefits that they could not ordinarily accomplish
on their own. Interest rates can be reduced, accounts
can be brought back to current status through re-aging,
and maybe best of all, can stop those annoying and
embarrassing creditor calls. It can get you a workable
monthly payment while shortening the payoff term to
typically 4-6 years. This can save thousands in interest
costs! Another overlooked benefit is that all credit
cards put into a debt management program are closed,
thus eliminating all temptation no matter how hard
you find it to say NO! All this without the trauma
and stigma caused by bankruptcy or settlement.
Since there are literally thousands
of these debt management companies out there, how
does one go about choosing the right one? In addition
to using a non-profit agency, check factors like the
company's Better Business Bureau report, are they accredited
by a nationally recognized certifying agency such
as ISO or COA, are their counselors certified as well,
how long have they been in business and word of mouth
recommendations. Another consideration is whether
to use one of the local community funded agencies
or a private one. Although the local agencies have
the advantage of being able to meet you face to face,
due to limited budgets they can lack the expertise
of private companies as they are often staffed predominately
by volunteers and don't offer the array of modern on-line
and technological services which today's consumers
deserve and most large creditors demand in order to
extend the debtor their most favorable terms. Moreover,
many locals encumber their clients with restrictive
guidelines, going as far as limiting the number of
haircuts you can get or movies you can view.
If you have reached the point where
you are transferring balances just to keep afloat,
making minimum payments and getting nowhere or getting
harassed by creditors and view bankruptcy or settlements
with your creditors as both far too damaging and morally
unacceptable, you may want to consider contacting
a reputable credit counseling/debt management organization.
A good starting place besides the BBB, would be one
of the debt management organizations that belong to
the American Association of Debt Management Organizations
(AADMO). Most of all, don't despair! Help is out there,
just do your homework and choose wisely. With the
right agency to guide you combined with a true commitment
to getting out of debt once and for all, there is
indeed light at the end of the tunnel.
The Credit Counseling Foundation, Inc
provides web-based education and personalized consumer
credit counseling to clients and the general public
in an effort to help consumers use credit wisely.
Visit us at http://www.godebtfree.com Nathan Dawson writes for http://mar
riedfinances.com a great online source for finance
information.
