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.
Provide your own debt help program by directing money you’re investing in non-retirement portfolios toward paying off credit card debt. In general, financial advisers do not recommend accessing or terminating retirement investments for paying off credit card debt.
Paying off credit card debt is a good “investment”
Eliminate the high cost of credit card debt: Creditors are required by law to post the annual percentage rate of your credit card debt on each monthly statement. The APR includes the card’s interest rate, membership fee, and penalty fees calculated as an annual percentage of your account balance. Let’s say that your APR is 15 percent, and you owe $2,000. If your balance and APR don’t change over one year, you’ll pay $300 in finance charges.
No commissions: Stock brokerages charge commissions for buying and selling stocks. Paying off credit card debt is commission free, and eliminates the cost of carrying credit card debt.
Reduce financial risk: Paying off credit card debt saves money and reduces the risk or ruining your credit should you become unable to pay your debt. Investing in the financial markets can involve losing the amounts you’ve invested when markets decline. If you’re carrying high APR credit card debt, paying it off is a risk-free “investment” in financial security.
Improve your credit: Paying off credit card debt improves your credit scores and suggests to credit bureaus that you are in control of your finances and can responsible handle credit card debt. Don’t close accounts you’ve paid off as this reduces your total available credit and can reduce your credit scores.
If you’re struggling with credit card debt, please contact a consumer credit counseling and debt consolidation service for debt help.
Record low mortgage rates are making mortgage loans more affordable than ever. Evaluate your current financial situation along with your goals for future relocation and retirement. A fifteen year mortgage provides debt help with meeting your goal of retiring debt free.
Mortgage benefits from a 15 year plan
Use a free online mortgage calculator for estimating savings associated with a 15 year mortgage. Estimate and deduct closing costs from potential savings on interest. With this calculated figure in mind, consider these benefits:
- Pay off your mortgage faster: Refinancing might mean making higher payments with a 15 year mortgage, but the benefit of paying it off sooner is a great plus if you’re concerned about retirement assets and rising expenses.
- Lower mortgage rates: 15 year mortgage rates are typically lower than 30 year fixed rate mortgages. A shorter repayment term translates to less risk for mortgage lenders, and your ability to qualify for the higher monthly payment required of a 15 year mortgage suggests financial stability.
- Potential savings on interest: Estimate interest savings using an online mortgage calculator. Enter your current mortgage balance, interest rate, and repayment term for each loan. Subtract the lower amount from the higher amount; the result represents potential interest savings.
Drawbacks to a 15 year loan
- Higher monthly payments: Your monthly mortgage payments will likely increase. For example, a 30 year mortgage for $200,000 at 4.25 percent has a monthly principle and interest (P&I) payment of $983.88. A 15 year mortgage of the same amount and interest rate has a monthly P&I payment of $1504.56, a difference of $520.68. Meeting the higher payments for a 15 year mortgage might mean less money for other essentials and savings.
- Higher risk of financial hardship: Substantially higher mortgage payments can increase the risk of foreclosure or bankruptcy in the event of long term hardship.
Consult a financial advisor for recommendations based on individual circumstances and financial goals.
Here are some debt management tips helpful for controlling credit card debt.
Debt management 101: Don’t increase credit limits
When you’re short of cash or have unexpected expenses, opening another credit card may seem like a good option. Instead, be realistic about how digging deeper into debt helps with your goal of effectively managing debt. Don’t fall for offers of deep discounts for opening a new credit card. Unlike the federal government, consumers can damage their credit by opening new accounts and maxing out credit cards.
Reducing finance charges: Can balance transfers help?
Finance charges, or the cost of using credit, are calculated as an annual percentage (APR) of the amount of debt you owe. Your credit card statements show your current APR for each monthly billing period. Take a deep breath and check out the APR for each of your credit cards. Variable interest rates, penalty fees, and card usage cause the APR to change.
Credit card companies promote transferring balances to their card in exchange for a low or no interest rate introductory period. Read the fine print; there is usually a 3 to 5 percent transfer fee tacked on to each transfer. This may be worthwhile under the following conditions:
You can transfer balances with double-digit APRs and pay them off within the introductory period. Failure to pay them off during the introductory period means that balances remaining after the introductory period expires will accrue interest at a new and usually much higher rate.
Controlling spending/card usage: If you practice retail therapy, or buy big ticket items that cannot be paid off in one billing cycle, please think twice about balance transfers, especially if you’re opening a new credit card account.
Consult a financial advisor or credit counseling and debt consolidation program for help with reducing and managing credit card debt.
Experian, a credit bureau specializing in consumer credit reporting, scoring and financial services, released a survey indicating that San Antonio, Texas is the city with the most per capita consumer credit card debt with an average of $ 5,177 in credit card debt as compared to the national average of $4,200 as of December 2010. The survey only considered balances on bank issued credit cards; cards issued by retail establishments weren’t included in the survey. Although survey results provide entertaining reading, they don’t help much if you’re drowning in credit card debt.
Finding debt solutions requires understanding the problem
Whether you live in San Antonio or Kalamazoo doesn’t matter if you can’t see past the pile of bills and late notices piling up. If you’re in trouble with credit card debt, it’s important to uncover the underlying reasons. Debtors Anonymous, a self help group, suggests signs of addictive spending:
- Not knowing where you stand financially: You don’t balance your checkbook or monitor your credit card balances. You continue spending with the hope that you have enough cash or credit to cover your purchases.
- Living for today and not worrying about tomorrow: Failing to budget for predictable expenses such as health care, taxes and other non-recurring but expected expenses.
- Difficulty meeting basic obligations: Do you put off paying your rent or mortgage until the last minute? Have you borrowed money to pay for groceries, or used credit card cash advances to pay utilities or rent? When you pay all of your basic expenses in a timely manner, do you feel as though you’ve accomplished something extraordinary?
- Debt brings drama: Are you always wondering how you’ll pay your bills, or robbing Peter to pay Paul? Are you frequently in crisis mode with money?
- Gaining a sense of status when using credit cards: Credit card ads succeed in convincing many consumers that carrying (and using) their cards is prestigious, and that carrying a piece of plastic named after a precious metal is somehow admirable. Wake up call: A credit card is a piece of plastic that functions as a financial tool when used responsibly or that can ruin your life if not used with care.
Don’t be afraid to admit that you need debt help. Depending on your situation, you may find help from sources including debt consolidation loans, consumer credit counseling and debt consolidation services, or through consulting a bankruptcy attorney. Facing debt problems and finding debt help today is your first step toward achieving financial security.
The Federal Reserve reports that although consumer debt levels are increasing, which indicates more consumer spending, credit card debt levels are falling. As of January 2011, consumer debt increased to $2.412 trillion, the fourth consecutive monthly increase. Credit card debt decreased by $4.2 billion or 6.4 percent during January. Although some of the decrease could reflect issuer charge offs or consumer bankruptcy filings, it’s also likely that consumers are learning the lesson that carrying high cost revolving debt is similar to being stuck on a high-speed hamster wheel. If you’re ready to free yourself from the cycle of incurring credit card debt and paying high interest and penalties, here are some tips for succesful debt management.
Managing credit card debt: no instant success
- Understand that debt doesn’t go away over night: Falling into a financial hole is easier than digging your way out. Your commitment to eliminating credit card debt is required for success.
- Establishing and writing down your goal: Review your credit card balances, make a list of them and set a goal for becoming debt free. It’s important to be realistic and plan your debt repayment schedule based on existing income. Don’t count on the lottery, your relatives or a windfall to bail you out of credit card debt.
- Apply all “found money” toward your debt: Tax refunds, raises, bonuses, funds from garage sales and online auctions can help you reduce your debt faster. That jar of change you’ve been saving for years? Take it to the bank and pay down your debt.
- Change your spending habits: Don’t carry credit cards in your wallet. If you have to consciously seek out a credit card before shopping, you may think twice about using it. You can use debit cards with major credit card logos anywhere that credit cards are accepted. Knowing your expenditures are coming out of your checking account can help you put the brakes on impulsive spending.
- Cooling off before buying: It’s not realistic to expect that you won’t engage in any discretionary spending, but try to enforce a “cooling off period” before purchasing items you want rather than need. Think about it overnight, review your debt management plan and ask yourself if $150 for a new pair of shoes would be better applied toward reducing credit card debt.
- Engaging the support of friends and family members can help you stay on track. Suggest alternative activities to recreational shopping and “girls day at the mall.”
The newly formed government agency, U.S. Consumer Finance Protection Bureau, reports that the Credit Card Accountability, Responsibility, and Disclosure (CARD)Act has caused the U.S. credit card industry to revise policies while reducing and eliminating some penalty fees. Highlights of the report include:
- Over-limit fees have all but disappeared.
- Prior to the CARD Act, 15 percent of credit card issuers reset credit card interest rates annually, but now approximately 2 percent of issuers are resetting interest rates each year.
- Assessed late payment fees fell to $427 million in December 2010. This represents a decrease of more than half of the January 2010 amount of $901 million.
- Since the inception of the CARD Act, credit card late fees have fallen from an average of $35.00 to $23.00.
These developments are a step in the right direction toward helping consumers with debt management. Here are some tips for applying CARD Act principles to your own credit card debt.
CARD Act: Gaining personal control over credit card debt
Credit cards: Evaluate your credit card accounts and usage. Reduce the finance charges you’re paying by using a debt consolidation loan or transferring high cost balances to lower cost accounts.
Accountability: Understanding how and why you got into debt can help you find debt solutions appropriate to your situation. Taking responsibility for your debt doesn’t require being your own loudest critic, but it does require being honest with yourself and seeking debt help if needed.
Responsibility: Taking control of your finances by establishing a cash-based budget and an affordable debt management plan is essential to gaining freedom from debt. While acknowledging past mistakes, focus on your new budget and debt management plan for eliminating credit card debt.
Disclosure: No, you don’t have to tell your neighbors that you’re awash in a sea of debt, but “disclosing” to yourself how much you owe, what it costs and understanding how credit card debt compromises financial security is an important step in the process of managing, reducing, and eliminating debt.
High finance charges and penalty fees can rapidly cause credit card debt to expand out of control. If you need debt help, consider talking with a financial advisor or consumer credit counseling service. Debt consolidation and credit counseling services can help you develop a budget, and may negotiate affordable payment terms with credit card companies. Avoid scams by checking out debt help services with the Better Business Bureau or other consumer advocacy service. Reputable debt help organizations typically offer free consultations and do not expect any payment until they have implemented a debt management plan for you, and you have agreed to all the terms of the plan.
Although “good” is a subjective term, we can clarify positives and negatives related to using debt consolidation as a method for debt management. Debt consolidation functions in a manner similar to refinancing a home mortgage; you’re trading one or more debts for a single new debt, typically one offering lower finance charges. Potential benefits associated with debt consolidation include:
- Streamlining debt management: Dealing with a stack of credit card bills and loan payments each month increases your chances of missing a payment. Credit card debt consolidation can help by rolling several balances into one.
- Cleaning house, and your head: If you’re stressing due to debt, using debt consolidation can help you regain some feeling of control. Paying off multiple debts with a debt consolidation loan or consumer credit counseling can eliminate problems with debt collectors calling you at home and work, along with helping you focus on paying off your debt consolidation balance in place of several credit card debts with changing balances and finance charges.
- Lower finance charges: When shopping debt consolidation loans, it’s important to compare the annual percentage rate (APR) for the debts you’re consolidating along with the APR for debt consolidation options you’re considering. Your goal is to consolidate debt to one account with a lower APR than the debts you’re consolidating. APR provides a more accurate estimate of actual debt costs because it includes interest rates, penalty fees and lender fees.
Debt management: Debt consolidation can help, or not
- Using your home for collateral: Unsecured debt consolidation loans can be difficult to find if you have bad credit. In today’s economic climate, with housing values declining, it may also be difficult to qualify for a home equity loan or line of credit with less than admirable credit. If your home has lost value, you may not have enough home equity to qualify for debt consolidation through home equity financing or refinancing your mortgage.
- Credit card balance transfers: Although these can be useful to consolidate a few low credit card balances, it’s easy to lose potential benefits if you fail to pay off your balance transfers prior to the expiration of the introductory period.
- More debt than before: This is a frightening scenario that can happen. Clearing up debts with a debt consolidation can provide a false sense of security which can lead to more debt. Credit card debt consolidation can lead to a vicious cycle of paying off, consolidating and incurring more debt.
Those struggling with debt can benefit from programs offered through non-profit debt consolidation programs. These programs can help you determine why you’re in debt, and establish debt management options through budgeting and affordable repayment plans.
The New York Times reports that Congress is gearing up to debate whether or not to increase the federal government’s debt ceiling. Hello? Isn’t it about time for our elected officials and so called leadership to start setting an example for we, the consumers? We are constantly reminded of the importance of financial prudence; meanwhile our government is spending like a fleet of drunken sailors. At some point, the government and debt-ridden consumers have to know when to say “when.” The government’s balance sheet is too big to tackle here, so let’s concentrate on reducing personal credit card debt.
Drowning in debt: Has this become America’s new favorite past time?
Recent reports of increased credit card usage among consumers seem to suggest a revival of consumer confidence, if not carelessness. Carrying credit card debt doesn’t make sense, particularly in uncertain economic times. Here are some reasons to think twice before running up credit card debt:
- Variable interest rates: Many credit cards carry variable interest rates, which can go up if the financial index the card is tied to increases.
- Minimum payments and unpaid interest: Minimum credit card payments typically do not cover all of the accrued interest, and unpaid amounts are added to your unpaid credit card debt.
- Finance charges: Although legislation has limited how and when credit card companies can impose penalty fees, these fees can add to your debt if you forget to make a payment or exceed your credit limit. If you incur a penalty fee for the first time, it’s worthwhile to call your credit card company and request a waiver of the fee.
- Job insecurity: Financial analysts and economists report that the economy is rebounding, but unemployment remains high. Carrying credit card debt takes a bite out of your budget that can be disastrous if you lose your job or your income is reduced.
- Temptation: Somehow paying with credit cards can lead to more spending. Avoid the temptation to spend lavishly or unnecessarily by carrying cash or a debit card instead of credit cards.
- Emergency savings: Relying on credit cards for emergencies can create costly debt. It’s important to establish and fund an emergency savings account. The amounts you’re paying toward credit card debt could have gone to savings instead of debt.
- Credit scores: Like it or not, credit scores can impact more than your ability to qualify for loans and credit. Employers and insurance carriers may check your credit scores as part of their approval processes. Although the bad economy has thrown a monkey wrench into the allegedly reliable models used by credit scoring companies to predict consumers’ creditworthiness and overall reliability, the system remains unchanged, and poor credit scores can create more than financial problems.
Seeking debt help is essential if you’re struggling with credit card debt. Contacting consumer credit counseling and debt consolidation programs is the first step toward finding affordable debt management solutions. Insurmountable debt causes physical and emotional stress, can strain interpersonal relationships and cause problems at work. Don’t wait. Please get the debt help you need today.
The problem with not having health insurance is that you don’t miss it until you need it. PBS reports that 44 million Americans are uninsured, and another 38 million are underinsured, which means they can face thousands of dollars in medical bills if they become ill. Any one of these circumstances can contribute to ruining your credit, your budget and your qualify of life. High deductibles and co-payments cause financial problems for families who cannot afford quality health coverage; about one third of the uninsured have problems meeting their bills, and this financial pressure causes many without adequate health coverage to put off seeing their doctors and other health care providers until they become seriously ill.
One hospital visit away from bankruptcy: Avoiding crushing medical debt
It’s important to get the care you need when you need it. Here are some tips for reducing and settling medical bills.
- Advise your care providers that you have no insurance, and ask about financial assistance programs. Hospital social workers and billing office personnel may refer you to programs for financial assistance or reduce your bill. You won’t know until you ask, so put pride aside and ask for the help you need.
- Contact billing agents and attempt to negotiate a repayment plan or settlement. Note payment dates, amounts and conversations regarding payment arrangements in writing. Provide all information requested to evaluate your ability to pay. Cooperate with medical billing personnel; they’re only doing their jobs and are more likely to help if you’re willing to listen and work toward a solution.
- Do pay what you can afford toward your medical bills. Making small payments can prevent having to deal with third party collectors.
- Do not tolerate threats or rudeness from collection agents. Health care providers often sell uncollectable debt to third party collection agencies, which can allow collectors to be rude and threatening when attempting to collect on unpaid bills. Ask collectors not to call you at work and terminate abusive calls.
- Contact a credit counseling and debt consolidation service for help. Non-profit consumer credit counseling and debt consolidation programs work with creditors to establish affordable repayment terms.
- Contact a debt settlement agent or attorney to make a final attempt at settling debt before filing bankruptcy. Debt settlement services negotiate with creditors to reduce the amounts you owe. Beware of debt settlement scams, and don’t pay any money up front for debt settlement services.
- When all else fails, contact a bankruptcy attorney. No one wants to file bankruptcy, but if you’re being threatened with wage garnishments, frozen bank accounts and you cannot meet your other expenses due to medical bills, you can seek relief under bankruptcy laws. Bankruptcy attorneys typically provide free consultations and can advise you of bankruptcy options. Although not an easy decision, please remember that bankruptcy is a legal means of eliminating or reducing insurmountable medical and credit card debt.
Gather the information you need from creditors, credit counselors and other financial advisors. Don’t be pressured into taking immediate action; take time to evaluate and compare options.