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.
The Federal Reserve reports that American consumers have boosted their debt for the second consecutive month as of November. The good news is that this debt includes student loans and installment loans such as vehicle financing. Credit card debt levels continue to fall as consumers fearing uncertain economic conditions and unemployment continue to pull back on discretionary spending.
Debt: The Good and the Bad
When it comes to debt, it may seem that no debt is good debt, but financial experts frequently suggest that debt including a home mortgage and student loans can be considered “good debt,” or worthwhile investments. Debt including credit card balances and discretionary purchases of expensive vehicles (which quickly depreciate in value) and other non-essential goods are considered “bad debt” due to the costs associated with carrying balances. Think about it; if you’re carrying balances for expensive nights out, theater tickets, and buying the latest fashions on credit, you’ll be paying off credit card debt after the meals and performances were enjoyed and the latest fashions have become yesterday’s news.
Credit card debt: A direct obstacle to financial security
What exactly is financial security? In times of economic challenges, being able to pay your monthly bills may represent financial security in the short term, but most of us must also plan for supplementing social security and/or pensions received from employers. It’s also important to have liquid savings on hand for taking care of emergencies and meeting living expenses when you become unemployed or cannot work. Paying off credit card debt is one of the best “investments” you can make. Here’s why.
Investment and savings income typically lower than credit card debt costs
We’re not suggesting that you should not contribute to savings, but if you compare the annual yields (interest paid) on savings accounts, certificate accounts, and most investments, they’ll be less than the annual percentage rates (APR) paid on credit card debt and other unsecured consumer debts. Let’s say the APR on your maxed out credit card is 12.99 percent. By paying off this balance, you’ll effectively be receiving a 12.99 percent return on funds used for repaying the debt. Gaining debt relief through paying off credit card balances is a strong first step toward putting your financial house in order.
Finding debt relief when you’re in too deep
Credit card debt can quickly increase due to poor budgeting, high finance charges, and the addition of penalty fees for late payments. If you’re running out of cash before pay day, or juggling bills each month, these are signs of debt problems that can potentially lead to credit problems and filing bankruptcy.
If you’re facing insurmountable debt, please seek debt help from a credit counseling and debt consolidation program.
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.”
Scams aimed at swindling consumers out of their money are perpetrated every day. The Internet Crime Complaint Center (IC3), a partnership between the FBI and the National White Collar Crime Center, recently logged its 2 millionth complaint about online criminal activity. Other scams are perpetrated by phone or even with letters sent through the mail.
Among the scams making the rounds that can boost your credit card debt or empty a bank account are:
- Debt settlement services. So many Americans are desperate to get out of debt that they become easy prey for people claiming to offer help with debt. While there are legitimate agencies offering debt help, there are others out there looking to prey on people. Avoid working with companies that make outrageous claims about their success rates or require large upfront payments before providing any services.
- Hijacked email and social network accounts. Someone hacks into an individual’s account and sends messages to all the contacts claiming that the account holder has been robbed and stranded in a foreign city. The desperate plea for help asks recipients of the message to send money.
- Solicitations from charities. Many charitable organizations step up efforts to solicit donations at the end of the year. Callers urge you to support their organization and try to convince you to use a credit card to make a donation. Fake organizations often use a name that sounds very similar to legitimate charities. Anytime you receive a solicitation from a charity verify that it is a legitimate group before donating.
Show restraint when giving money
Be skeptical of individuals or companies that approach you unsolicited and ask for money. While many legitimate companies are constantly marketing their services and products, it always pays to check out any unfamiliar organization you are thinking of supporting before handing over any money.
Several major credit card lenders are reporting lower delinquency rates for consumer credit card accounts; this development is seen as a positive sign for the US economy. Factors influencing this trend include:
- Economy: As the US economy shows signs of improvement, consumers who’ve returned to work are able to resume making payments on credit card debt.
- Consumers using credit cards less: The lower your credit card balances, the easier it is to keep your payments current. As concerns about job security and the general economy continue, many consumers are reducing their use of credit cards.
- Issuers charging off noncollectable accounts: Credit card companies remove bad debt from their active portfolios, a practice that reduces their delinquency rates. Although some creditors are reporting lower charge off rates, overall rates for charge offs remain high when compared to historical data.
Consumer credit counseling and debt consolidation options: Finding the help you need
The first step you’ll want to take when dealing with credit card debt is understanding that you have to help yourself. Being embarrassed or procrastinating in facing debt head-on can lead to more debt along with credit and potential legal problems. Here are some options for dealing with credit card debt:
- Credit card debt consolidation loans: Your bank or credit union may offer personal loans, sometimes called “signature loans,” with finance charges lower than you’re payng on credit card debt. Compare the annual percentage rates (APR) on your credit card accounts with the APR for unsecured debt consolidation loans.
- Credit card counseling and debt consolidation plans: Consumer credit counseling services can help with credit card debt management and consolidation. They’ll review your finances, help with establishing a cash-based budget, and negotiate affordable repayment of credit card debt with your creditors. You’ll make scheduled payments to the credit counseling service, and they’ll pay your creditors. These programs can help with avoiding bankruptcy and reduce or eliminate collection efforts by creditors.
- Online debt consolidation: It’s easy and convenient to seek online debt consolidation options, but please be careful. Don’t respond to unsolicited e-mail offering debt help. Seeking assistance through the National Foundation for Credit Counseling (NFCC) or a HUD approved counseling agency can help you find the help you need while avoiding scams.
- Avoid holiday spending using credit cards: Recent reports indicate that consumers are spending at higher levels, and this may be due to the approaching holiday season. Put your credit cards away and use cash or your debit card for funding holiday spending.
If you’re having problems with credit card debt, please seek consumer credit counseling and debt consolidation help immediately. The best holiday gift you can give yourself and your family is regaining financial security.
The final phase of federal legislation offering protection to debt-swamped consumers became effective October 27, but may not be stringent enough to fully protect consumers from debt settlement and debt consolidation scams. Although for-profit debt settlement/debt consolidation companies are required to disclose cost, potential negative consequences to consumers (for example, negative credit reporting of past due accounts) and how long a proposed debt settlement or debt consolidation plan will take to complete.
Financial guru Michelle Singletary points out in her blog, The Color of Money, that debt consolidation, debt settlement, and consumer credit counseling services will no longer be allowed to collect fees up front, but are allowed to keep any fees collected regardless of whether consumers complete their debt reduction plans. Additional provisions of the legislation include:
- Debt settlement companies selling services over the phone cannot receive payment for their services unless and until the debt is settled.
- Funds set aside to settle debt must be deposited into a dedicated account owned by the consumer, who is free to withdraw funds at any time.
Finding Debt Help: Looking out for yourself and your finances
- Don’t accept unsolicited offers of help: Legitimate firms that offer credit counseling and other debt settlement services typically do not solicit consumers via phone calls or over the Internet. Avoid unsolicited offers of help from firms or individuals unfamiliar to you.
- Sounds to good to be true? There are no miracles. Although it’s possible for credit counselors and other debt relief providers to negotiate lower interest rates and to obtain waivers of late fees in some cases, few credit card companies agree to settle credit card debt for less than what you owe. There are also no legitimate means of “erasing” bad credit. Credit counseling and debt settlement can help you avoid bankruptcy, but partial and late payments made during your debt settlement or credit counseling plan are reported to credit bureaus.
- Get referrals and check company references: Consumer credit counseling and debt consolidation services, as well as debt settlement firms, should be able to provide references. It’s a good idea to check with the Better Business Bureau for complaints against companies you’re considering for debt help. If you know anyone who has completed a debt consolidation or debt settlement program, ask for a referral. In today’s economy, many people have fallen on hard times; it’s likely that someone close to you may have a lead to the help you need.
Your instincts and common sense can serve you well when considering debt relief options. Ask questions, take notes, and don’t give into pressure when interviewing debt help providers. It’s a good idea to consider multiple options and find a good fit for yourself and your circumstances.
New regulations governing debt settlement and other debt help services are now in effect as the result of consumers complaining about being ripped off by scams that require up-front payment and offer little or no debt help. Highlights of new disclosures that must be made to consumers engaging debt settlement services include:
- Cost: Consumers must be notified up-front of all fees and costs associated with a debt settlement program.
- Time frame: Debt settlement services must advise consumers how long it takes to “see results” from the program being offered. This language leaves room for interpretation, so it’s best to ask prospective debt settlement companies how long it should take to complete the program being offered.
- Impact of debt help programs on consumer credit scores: Debt help services must advise consumers how their programs can affect consumer credit scores. Although credit scores may fall, debt help programs typically do not impact consumer credit as severely as filing bankruptcy or allowing unpaid debts to be charged off by creditors.
- Dedicated accounts: Debt settlement agencies are now prohibited from charging up-front fees, but they may require consumers to establish a dedicated account for depositing fees and costs. Debt help providers must disclose specific terms and conditions governing such accounts.
- Phone calls to and from debt settlement services: The new rules extend consumer protections for calling debt help services as well as governing calls from debt settlement services to consumers. These rules don’t govern email; print and keep email correspondence for your records.
Finding Debt Help: Red Flags
- Unsolicited offers of assistance: Don’t respond to unsolicited offers of debt help. Reputable debt settlement companies respond to consumer requests for assistance rather than “phishing” for clients online.
- Avoid firms “promising the moon”: Guarantees of any kind aren’t realistic; don’t fall for claims of high success rates or guarantees of any kind.
- “We can repair/fix/eliminate bad credit”: No they can’t. There is no legitimate method for instantly removing negative credit data from credit reports. Repaying debts over time improves your credit, but debt help services claiming “instant credit repair” may empty your wallet faster than repairing your credit.
Researching firms through the Better Business Bureau (BBB) and the National Foundation for Credit Counseling (NFCC) can help you find debt consolidation and credit counseling services that provide the help you need.
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.
You’re in trouble with credit card debt and need help fast. Beware of any debt help service that offers fast, immediate, or overnight relief. These claims aren’t legitimate; even filing bankruptcy takes months before your debts are discharged (liquidated) by the court.
Credit Counseling and Debt Consolidation: How they Work Together
Debtors who owe more than they can afford to repay may qualify for assistance from certified credit counseling programs that work with creditors to develop a repayment program at reduced cost. Although credit counseling programs typically do not reduce the amount of debt you owe, they can negotiate waivers and moratoriums on fees, and may also be able to reduce your interest rates. Once you accept the terms of your debt repayment plan, you make scheduled payments to your credit counseling agency and they distribute payments to your creditors after deducting their fee. This type of arrangement functions as both debt consolidation and a debt management plan because it includes a thorough review of your finances and helps you develop an affordable cash-based monthly budget.
These programs can take several years to complete, and require your cooperation and dedication to getting out of debt. You are required to close your existing credit card accounts, and it’s important to understand that credit counseling programs cannot guarantee when or if you’ll be able to qualify for new credit.
Debt Relief Quicksand: Avoid Getting in Deeper
Here are some tips to avoid debt help scams.
- Don’t pay anyone up front: Non-profit credit counseling services provide free consultations, and you don’t pay until you accept and agree to the terms of a debt consolidation/repayment plan in writing. Don’t pay anyone for lists of debt help services.
- Don’t respond to unsolicited offers of help: If your home is in foreclosure or you have tax liens, judgments, or other legal actions connected with your debts, you may receive solicitations for debt help. It’s important that you initiate any contact with debt help providers; this way you can avoid Internet scams and other shady dealings that could cost you and add to your debt.
- Interview several debt counselors: Before settling on a credit counseling and debt consolidation program, take time to check out several options. Compare costs and services provided. Ask questions, take notes, and find a counselor who’s friendly and helpful. Verify each agency’s standing with professional organizations such as the National Foundation for Credit Counseling.
Select a debt help provider based on individual needs and don’t forget to rely on your instinct. If something seems amiss, go with your feelings and find another option. Getting out of debt and improving your credit takes time, but it’s worth your time and effort.
You’re looking for help with credit card debt and aren’t sure where to turn. Debt resolution companies may promise results that sound too good to be true–and they probably are. Non-profit credit counseling and debt consolidation programs can help you get back on track–and you won’t have to pay a fortune with few results.
Desperate Times, Not-so-Desperate Measures: Finding Real Debt Help
You can find non-profit credit counselors through the National Foundation for Credit Counseling (NFCC) and through the U.S. Department of Housing and Urban Development (HUD). These agencies typically work on a sliding scale, which means that they review your income and obligations, and charge according to what you can afford to pay. Here are a few things to avoid when shopping for credit counseling services:
- Payment up front: Legitimate credit counseling and debt consolidation services typically arrange an initial free consultation. After they evaluate your situation and review your options, you can select a program that works for you and pay accordingly.
- High fees or solicitations for “contributions”: Avoid services that charge high fees or urge you to make “voluntary contributions.”
- Promises to “erase” or “fix” bad credit: Bad credit doesn’t happen overnight and it can’t be fixed instantly. Non-profit debt resolution programs may take a few years to complete, but you won’t risk being ripped off or asked to participate in unethical or illegal schemes to “fix” your credit.
- Programs that advise you to let your accounts go delinquent: This damages your credit and the end result–usually some kind of debt settlement arrangement–may not be approved by your creditors. Many debtors have fallen for schemes where they paid for services up front and didn’t pay their bills while waiting to have their debt resolved. They ended up with worse credit, more debt, and less money to repay it.
When seeking credit counseling, it’s a good idea to contact a few credit counseling services. Ask questions and make note of cost, length of program, and expected results. Professional credit counselors offer a full review of your budget, along with negotiating a repayment plan with you creditors. A credit counseling service that rushes you into a repayment plan without discussing your finances is not providing full service. Establishing a cash based budget is also essential to getting and staying out of debt.