Falling consumer credit card debt: Are we learning a lesson?
This week’s news brings interesting implications for consumer finances. First we learned that existing home prices have slumped to record lows, which has the media buzzing about the “new role” of owning a home. The new role is that our homes no longer function as limitless ATM machines. No more buying electronics, recreational vehicles, jewelry, and designer wardrobes with home equity loans and lines of credit. Under these circumstances, it appears that consumers would again turn to credit cards for the instant gratification of discretionary purchases. No way. Americans may finally be getting the message about the high cost and consequences of carrying high credit card debt.
Federal Reserve: Credit card debt decreases for 21st consecutive month
The Federal Reserve reports that credit card debt levels are continuing to fall, and that average credit card debt for individuals has fallen to $4951 as of June 30. This is the first time since 2002 that average consumer credit card debt has fallen below $5000. This is a trend worth continuing. Although recent legislation helps consumers in some ways by limiting credit card fees and requiring credit cards to notify customers in advance of arbitrary rate increases, many credit card companies are raising interest rates to recoup the income they’re losing due to caps on penalty fees. High cost debt is a particularly heavy burden during times of economic uncertainty.
Debt consolidation and credit counseling services provide help, support
Debt consolidation through a home equity loan or personal debt consolidation loan is often a first step to gaining control of credit card debt. What if you can’t borrow against your home or can’t qualify for debt consolidation loans? In situations where you can’t qualify for debt consolidation loans, a consumer credit counseling service may be able to help. These agencies act as a credit card debt consolidation service without loaning money. Instead, consumer credit counseling services offer debt consolidation and additional benefits:
- Reviewing your finances and developing a cash based budget
- Designing an affordable credit card debt repayment plan
- Negotiating with creditors to lower or eliminate finance charges and fees (based on need)
- Communicating with creditors on your behalf, which usually stops harassing calls to you, your home, and your work
- Administering your debt repayment plan for a low monthly fee, often based on ability to pay
- Avoiding bankruptcy through financial counseling and affordable debt repayment
Don’t put off taking “charge” of your credit card debt a moment longer. Contact a credit counseling service for debt help today.
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Loading ...Recent reports of falling FICO credit scores is not surprising in light of high unemployment rates, stagnant real estate markets, and ongoing home foreclosures. Unfortunately, other factors can lower your credit scores even if you’re paying your bills on time, haven’t lost your job, and aren’t in foreclosure.
- Credit utilization ratio: You can calculate this number by dividing the amount of debt you owe by the amount of credit you have. If you owe $3000 between three cards that have a combined total credit line of $10,000, your credit utilization ratio is 30%. Financial advisors recommend keeping your balances at about one third of your available credit, or about 33%. Unfortunately, if credit card issuers cut your credit lines, your credit score can decrease.
- Credit card issuers cutting credit lines: The days of carrying a wallet full of credit cards with five-figure credit lines are gone. Credit card companies are reducing credit lines to limit their risk. In the example above, owing $3000 against $10,000 total credit lines would put you in good shape, but if your total credit line is reduced to $5000, owing $3000 would increase your credit utilization ratio to 66.6%, which is well over the recommended utilization level of 33% or less.
- Unemployment: As high unemployment rates linger, more consumers find it necessary to make minimum credit card payments and may also increase balances using credit cards for essential expenses. Missing payments can take a big bite out of your credit scores very quickly.
- Sluggish housing markets: This can cause problems for homeowners who need to sell their homes to relocate to a new job or for those who can no longer make payments. If you can’t sell your home, or your lender won’t approve a short sale, you may be forced into foreclosure. Contact a housing counselor for help to avoid foreclosure.
- Reduced income: Taking lower paying jobs while waiting for your next professional gig can help pay the bills, but if you fall short, using credit cards can seem like a temporary “bridge” to make ends meet. High interest rates can send credit card balances out of control.
- High interest rates: Although legislation designed to protect consumers is now law, credit card companies are responding by increasing interest rates to replace revenue lost when certain practices and fee assessments were outlawed. The complicated methods credit card companies use to calculate interest can cause interest owed to increase rapidly.
Eliminating credit card debt saves money and improves your financial security; develop your own debt repayment plan or get help from credit counseling and debt consolidation programs. Although your credit rating can decrease during a debt management program, you can increase your savings and eventually rebuild your credit by making mortgage, vehicle, and student loan payments on time.
(No Ratings Yet) Loading ...Almost Half of Americans Are Stressed about Debt
Almost half of Americans are stressed about debt. A recent Associated Press-Gfk poll found that 46% of people surveyed are dealing with stress related to debt. Half of those people said they have “a great deal” or “a good bit” of stress. The poll found that 53% of Americans felt little or no stress about debt.
Job Security
Among the reasons that may contribute to stress related to debt is the fact that the unemployment rate is at 9.9%. Many people who currently hold jobs fear they could end up joining the ranks of the unemployed. Some households have tightened their belts, which has helped increase the personal savings rate to 3.6% in April, up from 3.1% a month earlier.
Get Debt Help If Needed
You may be among those who are stressed about credit card debt and other bills, and may be wondering what the future holds, especially if you have little savings. There are debt solutions available to help pay off what you owe. A debt counseling firm can work with you to improve your spending habits and budget money better to pay off credit card debt.
Debt Consolidation Help
Another way to get on track with a debt reduction plan is to put together a debt consolidation plan. With the help of a knowledgeable debt counseling firm you can put together a consolidation plan on your own. But if you need more help, there are debt consolidation services available. Just be prepared to pay fees for this help.
Yes, it is stressful to juggle a lot of debt. Take action now to nip your debt woes in the bud before they become even more unmanageable.
(No Ratings Yet) Loading ...Thanks to recent legislation, credit card companies are now required to print a toll free phone number for non-profit credit counseling on your credit card bills. Wall Street Journal writer, Karen Blumenthal, notes that although non-profit debt help agencies often receive funding from credit card companies, they offer services more likely to help consumers with resolving debt issues. Recent data suggests that consumers are either getting a clue and not carrying credit card debt, or are paying down their existing balances. The Federal Reserve reports that consumer revolving debt fell from $935 billion in the first quarter of 2009 to $853 billion during the first quarter of this year. Credit counseling professionals report that debt problems affect consumers in all income ranges; whether you’re an executive forced into early retirement or a secretary who’s been laid off, credit card debt offers equal opportunities for sleeplessness, stress, and financial problems.
Credit Card Debt: Falling into a Hole is Easier Than Climbing Out
Credit card debt is considered unsecured debt, which means that credit card companies have no collateral–your home or car–to fall back on if you fail to repay your credit card debt. Unsecured debt represents a higher risk, which is why it carries higher interest rates and other finance charges. High rates and fees add to your credit card balances, and making minimum payments is not enough to manage credit card debt effectively. Debt consolidation loans may be unavailable if you don’t qualify for a home equity loan, but credit counseling services can work with you to consolidate all of your debts under one repayment plan with one monthly payment. Credit counseling services typically provide a free initial consultation to review your finances and debt; they typically cannot help if your debt cannot be paid off within five years. If you do enter into a debt consolidation agreement with a consumer credit counseling service, they may be able to negotiate lower payments, interest rates, and fees to achieve affordable payments.
Getting Debt Help: Don’t Ignore the Elephant in the Room
Completing a credit counseling and debt consolidation program requires understanding how and why you got into debt. If you’re a compulsive shopper, you can easily sabotage your debt consolidation and repayment program unless you determine and address the reasons for your uncontrolled spending.
(No Ratings Yet) Loading ...Seattle Residents Have Most Debt, Says Experian
If you live in Seattle, there is a good chance you have a lot of debt. That’s because the city has the highest average debt per consumer at $26,646, according to data from Experian. However, Seattle residents have few late payments and high credit scores.
Dallas claims the No. 2 spot with average debt of $26,599, followed by Denver ($26,428), Atlanta ($26,063), and Phoenix ($26,035). Experian ranked the 20 metropolitan areas with the highest consumer debt. Los Angeles was at the bottom of the list. Read the rest of this entry »
(No Ratings Yet) Loading ...Is Credit Card Debt Keeping You from Getting a Job?
Having too much credit card debt can hurt your job search. That’s because some employers routinely check credit reports during the application process. Even if you are highly qualified for a position, your bad credit could be a huge red flag that leads an employer to offer a job to someone else.
Credit Debt Relief
If you find yourself losing out on jobs because of bad credit, it’s important to put together a debt reduction plan to begin repairing credit. Some options for getting help with debt include: Read the rest of this entry »
(No Ratings Yet) Loading ...Senator Mark Udall (D-Co) has introduced a bill that would greatly assist consumers in dealing with and improving their credit. The legislation, intended to amend the Fair Credit Reporting Act, would require credit bureaus to include credit scores with free annual credit reports. Under current law, consumers can request free copies of their credit reports from credit bureaus Equifax, Experian, and TransUnion annually, but must purchase their credit scores. From the standpoint of consumers, whose financial lives are highly impacted by credit scoring, this legislation is long overdue. Here are some reasons why credit scores are important along with tips for improving them.
Credit Card Debt Can Lower Your Credit Scores
Credit scores not only impact your ability to get credit, but they can also influence your chances for getting hired, renting or buying a home, and finding a good prices on insurance. Here are some things that are useful for boosting your credit scores:
- Paying down credit card debt: Too many of us carry credit card debt in excess of one third of our available credit. If your debt utilization ratio (amount of debt owed divided by your total credit lines) is more than 33%, developing a debt management plan is essential to improve your credit scores.
- Understanding and Comparing APR: The annual percentage rate (APR) for each of your credit cards displays on your monthly statements. The APR is the total of interest and other finance charges including penalty fees expressed as an annual percentage of your current balance. An APR can change from month to month, but paying down the highest APR debt first can help save on finance charges and pay off your debt faster.
- Getting Debt Help: If you have no will power or are concerned about successfully managing your credit card debt, contact non profit consumer credit counseling and debt consolidation services for help. These agencies can help evaluate your income and spending, develop a cash based budget that includes saving for emergencies, and negotiate affordable repayment terms with your creditors. If you agree to a repayment program, you are charged an administrative fee and asked to pay the agency a specified amount toward your debt each month. Your credit counseling agency deducts its fee and pays your creditors according to your repayment plan.
Credit Counseling and Your Credit: No Miracles Available
Anyone promising to “eliminate negative credit” or provide “overnight relief” is not providing legitimate debt management help. Credit counseling and debt consolidation programs cannot change negative credit entries that result from overdue accounts. Credit counseling services cannot guarantee that you’ll have good credit upon completing your plan, and they also cannot guarantee that you’ll qualify for new credit.
Debt Management: Don’t Let Temptation Sabotage Your Credit Scores
Consumers who are in debt due to impulsive spending are vulnerable to temptation after paying off credit card debt. For your financial peace of mind, please banish the phrase “just this once” from your vocabulary and don’t carry credit cards with you.
(No Ratings Yet) Loading ...GAO Says Debt Settlement Firms Engage in Abusive Practices
Should you use a debt settlement program? Based on a recent Government Accountability Office (GAO) report you may be better off negotiating credit card debt on your own.
Fraudulent Practices
The GAO report found that “some debt settlement companies engage in fraudulent, deceptive, and abusive practices that pose a risk to consumers.” Among the questionable tactics is the practice of collecting fees from customers before actually settling their debt — and in some cases not settling it at all. Out of 20 companies the agency contacted, only one said it collects fees after successfully settling debt.
The GAO report also said that many debt settlement programs claimed exceptionally high rates of success, and in some cases 100% success rates. In actuality, less than 10% of people successfully complete debt settlement programs, according to the Federal Trade Commission.
Negotiate Your Own Debt Settlement
So what should you do if you have a lot of credit card debt and want to settle? First, don’t rely on someone else to contact your creditors. You can negotiate your own credit card debt and ask for a payment plan. Most creditors would rather work directly with you than have a third-party involved.
Second, continue making payments as long as you can. It’s better to pay even a small amount on a credit card debt rather than nothing at all. Send whatever you can to keep your account out of collections.
Debt Counseling Can Help
Finally, get free or low-cost debt counseling. A debt counseling program can help analyze spending habits to see where you can make changes. Find a credit counselor who spends as much time as needed reviewing your finances and really takes time to listen to your concerns. The program should also offer additional classes and resources on managing money.
(No Ratings Yet) Loading ...Credit Card Rewards Can Help with Debt Reduction
You’ve wracked up a lot of credit card debt in the past, but have turned over a new leaf. A solid debt reduction plan is in place and you have stopped using credit cards for new purchases. But did you know that the very credit card that has contributed to money problems could help your debt reduction plan?
Credit Card Rewards Balance
Credit card rewards plans usually allow you to accumulate points each time you make a purchase. Many people sign up for rewards plans but never look at their points balance. If you haven’t checked out your balance lately, it’s time. You could have thousands of points that can be used for rewards. It’s also important to use rewards points before they expire. Read the rest of this entry »
(No Ratings Yet) Loading ...Federal Reserve: Credit Card Debt Fell by $9.4 Billion in February
The Federal Reserve reports that U.S. consumers are paying down their credit card debt. Consumer debt levels have fallen for 15 of the last 17 months; all consumer debt levels (excluding mortgages and other real estate loans) fell by $11.5 billion in February to a total of approximately $2.45 trillion. We still have a ways to go. Here are some tips for paying off credit card debt.
(No Ratings Yet) Loading ...- This blog covers a wide variety of debt consolidation and loan topics.
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Cost of Bankruptcy Has Risen Since 2005 Reform
Understanding consumer debt: The good, the necessary, and the ...
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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.
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