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Keeping your personal “debt ceiling” from crashing down

Created: On September 5, 2011 @ 12:09 am In

Your personal “debt ceiling” represents the amount of debt you are comfortable owing. FICO recommends keeping credit card balances below one-third of your credit limit. Higher debt levels lower your credit scores. Today’ economy can make paying off credit card debt difficult, but reducing your balances to less than one-third of your credit lines is a good start.

Managing credit card debt: 4 tips for success

Establish and keep a household budget: Being too busy, or fearful, or procrastinating aren’t excuses. A budget provides a basis for understanding how much money comes in, and where, why, and how it goes out. This information is essential for mending bad spending habits and converting to a cash-based budget.
Understand and reduce the cost of credit card debt: Federal law requires credit card issuers to report the annual percentage rate (APR) for each card on every statement. APR is the sum of finance charges including interest, penalty fees and membership fees calculated as a percentage of the balance on each account. An APR of 22 percent on a balance of $5000 carried for one year and unchanged would cost $1100 annually.
Compare credit card APR to savings and investment yields: Investments are iffy these days, and deposit accounts are paying zilch; if you have credit card debt, paying it off can provide the best return on your money, as you’re saving the APR amounts for each balance you’re carrying.
Maintain financial harmony: If you’re sharing a budget with a significant other, make sure you’re on the same page. Track spending and how you you’re paying for expenses. This helps with avoiding nasty surprises when you open credit card and financial statements, and helps with preventing even nastier arguments over money.

If you’re uncomfortable dealing with credit card debt alone, please contact credit counseling and debt consolidation services for assistance.

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