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.
Consumers in the U.S. are still in financial distress, but their overall financial situation seems to be improving. The CredAbility Consumer Distress Index tracks the financial condition of the average U.S. household each quarter. CredAbility, a nonprofit credit counseling firm, measured employment, housing, credit, how households manage budgets and net worth.
Index score rises
U.S. households had a score of 68.1 on a 100-point scale in the first quarter of 2011, which was up from 67.2 the previous quarter. It was the highest score since the financial crisis escalated in the third period of 2008. A score below 70 indicates that households are experiencing financial distress.
However, many consumers are getting their acts together and improving their finances. For instance, many people are doing better at managing their household budgets. They also are showing some improvement in debt management, reflected in the fact that there were fewer bankruptcy filings, which fell 6 percent from the year-earlier quarter.
“The good news is that the full-time labor force grew by more than 540,000 people in the first quarter and consumers with stable incomes have a handle on their credit and household budgets,” said Mark Cole, chief operating officer for CredAbility and author of the report. “While the housing category continues to deteriorate, a gain of four points in the index during the past five quarters indicates that the majority of consumers are on the right track.”
Distressed southern states
Some areas of the country fared better than others. North Dakota (82.35) and South Dakota (81.23) were the states with the highest individual scores. Overall those two states have not been hit as hard by the economic crisis as some other parts of the country. Six states in the Southeast were among the 10 most distressed states in the country.
Help for your household
If you find yourself feeling overly stressed by credit card debt and other bills, it may be time to get help with debt. Consider finding a reputable debt counseling firm to work with you to better manage your household budget.
The U.S. government received a wake up call this week when Standard & Poor’s revised its credit rating outlook to negative from stable and affirmed its ‘AAA/A-1+’ sovereign credit ratings on the United States.
“Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” S&P said in a statement.
More pressure to cut debt
The S&P report steps up the pressure on the government to get the federal deficit and debt under control before it loses its AAA rating. It also is a reminder that many Americans need to step up efforts to get their own debt under control.
Check your credit report to see what needs to be done and then consider the following things that can help get your credit in order.
- Debt counseling: Don’t think you have to go it alone when trying to wipe out credit card debt. Find a reputable debt counseling firm that can help put together a plan for tackling your bills. Look for an agency that helps you learn to budget and offers educational programs aimed at improving overall money management.
- Credit card debt settlement: Being behind on credit card payments by a few months may actually work in your favor for negotiating a debt settlement. Contact your creditors to see if you can negotiate a lower payoff. It may take several attempts to reach the right person who can set up a debt settlement, but it’s worth the effort. In some cases consumers have been able to settle credit card debt for less than half of what was actually owed.
- Credit consolidation: Consolidating your bills may allow you to get a lower monthly payment. While lower payments can help while you’re trying to repair credit, it’s a good idea to continue paying as much as possible toward debt if you can afford it. Finally, debt consolidation only works if you avoid running up more debt.
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.
Consumers can have love-hate relationships with credit cards; they love the convenience and benefits offered by credit card companies, but paying high interest and fees makes it difficult to reduce credit card balances even when paying more than the minimum amount required each month.
Legislation designed to protect consumers is meeting with mixed reactions from credit card companies. Anxious to recoup losses associated with the new rules, some credit card companies are raising interest rates, increasing or imposing membership fees, and are reducing “niche” credit cards tied to retailers and services that reflect consumers’ interests and spending habits.
The economic downturn has caused some credit card issuers to slash credit lines and reduce or charge more for other financial services including checking and savings accounts. While consumers with good to excellent credit can negotiate with credit card issuers and financial institutions, consumers with fair or poor credit ratings may not be able to negotiate lower rates and fee waivers.
Good Credit? Here’s Some Good News
Effective debt management requires paying close attention to who and how much you owe. Credit card companies compete for business by offering low introductory rates to open a new account. These offers can also encourage transferring balances from your existing credit card accounts to your new credit card account. This can be a great way to reduce the cost of debt if:
- You can pay off the debt transferred within the introductory period of no to low interest.
- Transfer fees (typically 3 to 5% of each balance transferred) plus the introductory interest rate on the new credit card are significantly less than the annual percentage rate you’re paying on your credit card balances.
- There are no membership fees or other fees that reduce your potential savings.
- You can stop using credit cards once you’ve completed your balance transfers.
Newsweek reports that some credit card issuers are lowering rates they charge during introductory periods and extending the length of the introductory periods, which can vary from six months to a year or more. This can help you pay off credit card balances at less cost.
Bad Credit? Consumer Credit Counseling and Debt Consolidation Programs Offer Solutions
Credit counseling and debt consolidation services may be able to help if you cannot qualify for low cost balance transfer offers or debt consolidation loans. Credit counseling and debt consolidation services typically work with clients to find affordable solutions to repay credit card debt. This process requires reviewing your financial situation and determining how much you can afford to pay toward credit card debt.
Credit counselors can also help you design a cash based budget and negotiate the terms of your debt repayment plan with your creditors. These programs provide the added benefit of debt consolidation because you make one scheduled payment to your credit counseling service and they pay your creditors.
When looking at some recent financial data, it appears that more Americans are shunning debt.
Credit Card Debt Declines
Outstanding consumer debt has fallen over the past year, most recently at $1.59 trillion in November, according to data from the Federal Reserve. Revolving debt, which is mostly credit card debt, was $874 billion.
Personal Savings Rate
The declining numbers do indicate that some people are embracing the trend that it’s hip to be frugal and are paying off debt. The personal savings rate was at 4.5% in November, according to the latest figures from the Bureau of Economic Analysis (BEA). It was near zero before the economic crisis.
But a recent article at TheStreet.com makes the point that the lower overall debt level is probably due in part to credit card debt and other loans being written off, bankruptcies, and loan forgiveness programs. The article concludes that many Americans really haven’t learned their lesson about taking on too much debt.
Debt Reduction Strategies
The fact is that consumer debt levels have dropped, and there are ample opportunities to get help with debt to improve your finances.
So what can you do to dig your way out of a financial mess?
- Negotiate a debt settlement with your creditors
- Get debt help from a reputable debt counseling firm
- Consolidate credit card debt to lower the amount of interest paid out
- Stop buying stuff you don’t need and can’t afford
Credit Debt Relief
In the end it doesn’t matter what other people are doing. It’s up to you to secure your own financial future, and dumping debt and boosting savings can help you do that.
Recently my family went to a diner and noticed that the menu had changed. Previously they had offered dinner specials that included an entrée, soup, salad, and dessert all for one price. But that day, the menu indicated that you had to pay an extra $3 for the soup, salad, and dessert. My theory is that too many people were buying the dinner combos and splitting them to save money, so the diner decided to charge more to make up for lost sales.
Whatever the reason for the price increase, it’s just another example of how food costs have gone through the roof this year. That’s why many people are cutting down on eating out or dining at less expensive restaurants. About 43% of those polled by Booz & Co. said they are eating out less because of the economy, and 35% said they are packing their lunch to take to work.
A few years back I remember hearing some colleagues making fun of someone they knew who purchased things using layaway, which allows you to have items held until you complete payments on them. They hooted and hollered about how it was so tacky and beneath them to even think of using layaway to purchase anything. I was pretty mystified by the whole thing and mentioned that when I was a kid layaway was standard practice by almost every family I knew – especially when it came to back-to-school shopping and Christmas gifts. They acknowledged that it was common practice years ago, but all of these people said they wouldn’t be caught dead using layaway.
My, how times have changed. Apparently layaway is regaining popularity as the economy’s woes deepen. While many retailers did away with layaway years ago, places like Kmart and Burlington Coat Factory still offer this payment plan. Kmart is even highlighting its layaway plan in its holiday advertising.
I just peeked at my IRA account and it wasn’t pretty. At least I looked. Quite a few people have told me in the past couple of weeks that they refuse to look at their retirement accounts to see how much money has been lost as the stock market has gyrated.
I’m not surprised people are taking the losses so hard since Americans have lost about $2 trillion in retirement savings over the past 15 months. But I am surprised that so many people don’t even want to look at their portfolio to see where they might be able to make changes to minimize their losses.
With all the financial turmoil and the collapse of 13 banks this year, many people are wondering whether it’s safe to leave their money in the bank. Stories have abounded of fearful people rushing to withdraw their money from savings accounts, causing runs on some banks. But before you withdraw your money and hide it under a mattress, here’s what you need to know about how your deposits are insured.
Recently, the Federal Deposit Insurance Corporation (FDIC) temporarily raised the limit on deposit insurance to $250,000 from $100,000. That measure was taken to discourage people from grabbing their money and to help support the government’s bailout package. But as the economy has continued to struggle, government officials have discussed whether the limits should be entirely removed, in effect insuring all bank deposits.