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June 7th, 2010

Reports of Reduced Credit Card Debt: Not All Good News

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Recent reports of falling rates of U.S. consumer credit card debt may come as a relief to debt burdened consumers, but not so fast. Time magazine’s blog, The Curious Capitalist, explains that falling credit card debt levels are not entirely attributed to consumers paying down credit card debt. The blog cites a recent study indicating that of $51 billion in U.S. credit card debt paid down during the first quarter of 2010, $29 billion was paid down by consumers, but the remaining $22 billion was removed from active status after being charged off by credit card issuers. Charge offs represent debts liquidated through bankruptcy or those deemed uncollectible. First quarter debt statistics also paint a rosier picture with consumers paying down holiday debt, and using tax refunds to pay down debt faster than usual. If you’re struggling with credit card debt, examining your budget and paying more toward credit card balances can help you gain control before you need consumer credit counseling and debt consolidation assistance.

Debt Management: Tips for Doing it Yourself

  • Know what you owe: It can be tempting to avoid facing how much you owe, but knowledge is power; it can help you evaluate and change your budget to pay down credit card debt faster.
  • Determine the APR for each account: The annual percentage rate (APR) measures the cost of each credit card account including interest and fees as an annual percentage of the balance owed. Plan on paying your highest APR debt first.
  • Evaluate monthly income and expenses: Add up all take-home pay and other sources of household income. Total your monthly expenses, including housing, utilities, food, insurance, home maintenance, clothing and grooming, pet care, and medical expenses and insurance. Don’t forget to include amounts for retirement savings and emergency savings. Subtract this total from your net household income. The resulting amount is what you have available to pay your credit card debt.
  • Reduce expenses or increase income: If the amount available for repaying debt is equal to or less than minimum payments for your credit card debt, you need to reduce expenses or increase income. Taking a second look at your budget can show where you can trim expenses; otherwise, consider raising money through garage sales, online auctions, or taking a part time job.
  • Pay off highest APR debt first: This helps reduce finance charges on revolving credit card debt. Pay the most you can toward your highest APR account, while making minimum payments on your other accounts. When your highest APR debt is paid off, use the amount you were paying toward it plus the minimum payment you’re paying to liquidate the next debt, and so on.

If you can’t pay off credit card debt on your own, please seek debt help from a consumer credit counseling and debt consolidation service. These firms work with you and credit card companies to establish a budget and affordable debt repayment plan based on your income.

Post written by Karen Lawson

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  • Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score. Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management. He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others. He can be contacted by visiting his personal site, GoodCreditLiving.com.

  • Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.

  • Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.

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