Moody’s Investor Services reports that the rate of consumer credit card debt charged off by lenders rose from 10% in October to 10.6% in November. Moody’s expects charge-offs to increase during the winter months and to peak at 12 to 13 percent in mid 2010. As credit card issuers deal with charge-offs, which are debts deemed uncollectible, consumers can likely expect consumer credit options to remain few and far between. This scenario suggests that consumers have little choice but to pay off credit card debt and make do with the credit they currently have. Making an overall debt management plan can help you determine:
How much you owe and how much it costs
How to prioritize paying off debt based on how much each account costs (your annual percentage rate [APR])
How, or if, you can afford to live on a cash budget and stop using credit cards to bridge gaps between cash and paydays
How to develop a cash-based budget that includes saving for emergencies and long term, and enough to pay toward your debts while meeting all household expenses with cash
Learning exactly who and how much you owe can be a difficult first step, but once you know what you’re facing, you can become motivated to eliminate credit card debt once and for all.
Credit Card Debt is Expensive: Reviewing Your APRs
The APR is a calculation of how much a credit card account costs expressed as an annual percentage. The APR includes the interest rate, membership fees, and penalty fees including late charges and over-limit fees. The APR is clearly printed on your monthly statement and can change according to interest rate changes, balance amount, or fees accrued. Gather your latest round of credit card bills or review them online. Make a list of your credit card debt including:
Account number, contact information, and name of issuer
Minimum payment required
Payment due date
Set up a spreadsheet or other accounting method to track your accounts and arrange your credit card debt in descending order from the highest APR accounts to the lowest APR accounts.
Total the amount of monthly minimum payments. You should easily be able to make minimum payments, but your goal is to pay more toward your highest APR debt, then apply that monthly amount to the next debt until you’ve retired your credit card debt. If you find that you can only meet minimum payments, or fall short of meeting them, you need to revise your budget by reducing other expenses or finding additional income. If you’re dealing with an insurmountable negative cash flow, please get debt help.
Total your credit card balances. Write down the amount and set it aside. Although you may be shocked and dismayed by how much you owe, the truth serves as motivation to improve your financial situation. Don’t dwell on the past; as you track your progress toward debt freedom, seeing your balance decline provides more motivation for paying off debt.
Many people make New Year’s resolutions to lose weight, exercise more, quit smoking, or get rid of other bad habits. The start of a new year is also a good time to put a debt reduction plan in place and attack it with gusto. Use the following tips to get the debt help you need.
Get Debt Counseling
If you’ve had trouble knocking out credit card debt on your own, perhaps debt counseling can help. A debt counselor can help put together a strategic plan to budget and manage your money better. Debt counseling also can make you more accountable for your behavior to reach debt reduction goals. Read the rest of this entry »
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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.