Citibank is reporting a drop in consumer credit card charge-offs for November. In October, the Citibank reported charge-offs at the rate of 10.27 percent , but charge-offs for November fell to 9.4 percent. Charge-offs provide a method for credit card issuers to remove uncollectible accounts from their books, and the process typically occurs after a credit card account becomes 180 days delinquent. Citibank, a major issuer of consumer credit cards is also reporting that its delinquency rate for credit card accounts also fell during November. This news could signal a trend toward a consumer “wake up call” and continued efforts toward liquidating credit card debt. Debt consolidation can be a first step toward reducing the cost of existing credit card debt. Is debt consolidation good for resolving debt? The answer can depend on individual circumstances.
Debt consolidation loans and unsecured debt consolidation plans
Debt consolidation is the process of rolling several loan or credit card balances into one loan with lower finance charges, or annual percentage rate (APR). This streamlines your debt management activities as you’ll only be paying one loan payment instead of several. Ideally, debt consolidation loans and programs can lower the cost of existing debt and provide lower monthly payments. If you cannot qualify for an unsecured credit card debt consolidation loan (personal loan) from a financial institution, you may qualify for debt consolidation help through a debt consolidation and credit counseling program.
Can debt consolidation work for you?
Debt consolidation can help with organizing your bills and reducing costs, but if you’re a devotee of retail therapy or other impulsive credit card use, debt consolidation loans can lead to more debt. If you have bad credit, it can be difficult to qualify for an unsecured debt consolidaton loan. Secured debt consolidation loans require putting up your home or vehicle as collateral. You could lose your home or car for failing to repay a secured debt consolidation loan.
If you doubt your ability to manage debt after taking out a debt consolidation loan, debt consolidation and credit counseling can help with establishing a cash based budget, understanding how you got into trouble with credit cards, and establishing a repayment program with your creditors. These programs typically require closing all credit card accounts, so this removes the temptation of going to the mall “just this once.”
Personal finance author David Bach has partnered with Equifax to issue the Debt Free Challenge. The goal is to get 1 million people to pledge to pay off $1 billion in debt.
Crippling debt load
“Personal debt has become a major problem for American consumers — the average American family is carrying close to $15,000 in credit card debt,” Bach said in a statement. “Unfortunately there is somewhat of a paralysis that sets in when it comes to getting out of debt — it can seem overwhelming and people don’t know where to start. The Debt Free Challenge can be that first step.”
Debt reduction tools
If you sign up for the challenge, you can download a free chapter from Bach’s book, Debt-Free for Life: The Finish Rich Plan for Financial Freedom. You also get to try out Equifax’s Debt Wise product free for 30 days. After the free trial ends the cost is $14.95 a month. The Debt Wise product basically helps you set up a debt stacking plan to pay off various debts.
Structured debt help
Although there could be some benefit to having a structured plan to pay off credit card debt and other bills, think long and hard before signing up for such a plan. If you really are committed to paying off credit card debt and can stick with a program, it may be worth a try. But be honest with yourself. If you really have no intention of following through with a debt reduction plan, signing up for a paid program could just end up being another monthly expense you can’t really afford.
Use any tools you can find that might help with your debt reduction plan. Before paying for debt help, search for free debt counseling programs or other materials that can help get your finances in order.
In a recent interview, Elizabeth Warren, an advisor to the Obama administration slated to head a new federal consumer rights agency, noted that she has received numerous suggestions for providing consistent regulation and guidelines for overseeing consumer credit and lending practices.
Citing inconsistency in advertising credit terms and finance charges, professor Warren recommends standardized food labeling requirements a potential model for clearly communicating the terms and features of consumer credit cards and loans. Consistent labeling would assist consumers with comparing features and avoiding hidden terms that can increase debt. Debt consolidation and credit counseling services typically advise consumers to shop credit card offers and compare terms and conditions.
Managing credit card debt: Understanding credit terms and conditions
Primary consumer complaints include misleading advertising, and credit card and loan terms and conditions that are incomprehensible if not illegible.Although credit card companies frequently promote low interest rates, they may not promote annual fees and other charges assessed to consumers as part of the “fine print.” Examples of credit card terms that can lead trouble include:
- No interest if paid within “x” months: This offer can quickly gain your attention, and may lead to a buying spree based on the presumption that you’ll pay off your balance within the promotional no interest period. If you fail to do so, or make a late payment, the credit card company may assess deferred interest to your original balance.
- Transfer balances to a new card with a “low or no initial rate”: This is similar to the no interest promotion, but targets consumers who are carrying credit card balances. The offers claim that you can transfer your balances to a new credit account with a low initial rate. Many of these offers also require paying a transfer fee, and may include provisions for higher interest rates after the promotional period expires. Comparing terms is important before using credit cards for debt consolidation.
- Too good to be true? Look again: Car dealers, consumer lenders, and retail establishments depend on consumers making impulsive decisions to buy and borrow to pay for their purchases. Avoid pressure for buying, and don’t be talked into buying or borrowing before you’ve fully reviewed terms and conditions associated with opening a credit account for financing your purchase.
Pay attention to your instincts and walk away from any situation that makes you uncomfortable. You can also find reputable non profit debt consolidation and credit counseling services if you need debt help.