Credit Card Debt Research & Edited By Gabriel Kazakias 12/27/07 gabe314@optonline.com Credit Cards Nightmare According to Linda Tucker, Director of Education for Consumer Credit Counseling Service in North Little Rock, Arkansas, it wasn’t until the 1960s that credit cards started becoming available to the average consumer. Today almost everyone has at least one card in his or her wallet. Howard Dvorkin, author of Credit Hell says that according to one survey consumers are exposed to 300-400 advertisements every day. If you stop and think for a while you will see that we have nobody else to blame but ourselves. We don’t really have to allow ourselves to become victims of our own habits and lack of self discipline. Millions of people pay the consequences of credit card debt, believe me I am one of them. Managing Your Finances Managing our finances correctly is as necessary as managing our health. According to Linda Tucker the first step is determining our monthly income and needed expenses. Then what we need to do is setup a monthly budget. Setting up a budget is not always easy but there are many agencies, some of them free, that you can go for help. Setting up a budget is the first step, sticking to it is the next, and often more difficult task. To keep ourselves on track we might need to set goals and put motivators in place. Savings goals can include emergencies, vacations, cars, and of course don’t forget long range goals such as retirement. Tucker also says a reward program can be a great motivator as well. Just keep in mind that whatever we choose as a reward, it shouldn’t compromise the hard work we’ve done in managing our finances. I happen to have a good credit score but about two years ago I noticed that my credit score went down. Asking around I was told that my credit score went down because I charged 75% of my available limit in one of my cards. So, we should never charge more than 5060% of your available limit otherwise our credit score could go down.
Below are some basic recommendations offered from most of the credit card counseling services: 1. 2. 3. 4. 5. 6. 7. 8. 9. Read the fine prints. Know your initial introductory rate and the normal interest rate. Know the exact date when the introductory offer is expire. Pay the balance in full. Pay on time. Use it like cash not like a credit card. Cash advances have higher interest rates and no grace period. Avoid extra expenses. If you have more than one card and you pay off one of the cards, stop using the paid off credit card but don’t cancel the account. If you do, your credit score might decline because your credit to debt ratio goes down. 10. Your credit report is for your safety, check it regularly. 11. Use a debit not a credit card for convenience. 12. Request a due date to fit your other bills so you avoid late payment. 13. Make them work for you, pay them within the free interest grace period. How Much Do You Owe? How much do YOU owe on your credit cards? The average American family is now over $7,000 in debt just on their credit cards. That debt generates an interest charge of over $105 each month if your card charges the average 18%. Most credit card companies require a modest payment towards the card balance. Modest payment over the card balance is from $10 to $20 a month. To pay off a $7000 debt at $20 a month you will need 29 years to pay off the debt. And what about those interest charges? Paying off a $7000 credit card debt charging an interest rate of 18% and paying $20 a month towards the debt, you will pay over $18,400, more than TWICE the original debt, just in interest. What if you have more than one card? What if your debt is over $7000? What can you do? How can you get out of this hole? This is one of the techniques that can help you pay off your debt and do not require expensive loans, invasive credit checks, or expensive Financial Planners and Accountants. The most effective technique is sometimes called the "snowball"
method. The snowball method suggests that when you pay off one debt you apply that payment amount to the next debt. Thus the amount you pay on a debt grows like a snowball rolling down a hill. Excessive credit card debt is a growing sickness in America, and like many illnesses, people tend to ignore the problem until it's of epidemic proportions. Take control now and eliminate credit card debt before it threatens your financial health. To eliminate credit card debt as rapidly as possible at the lowest possible cost to you most experts recommend using a tried-and-true credit card debt elimination method. 1. List all of your credit cards, including the balance, the interest rate, and the minimum payment percentage and the minimum payment according to the latest statement. The minimum payment percentage can be found in the small print on your credit card statement or your cardholder agreement, and is usually between 2 and 2 1/2 percent of your balance. 2. Rearrange the list so the credit card with the highest interest rate is at the top and the credit card with the lowest interest rate is at the bottom. 3. Add up the required minimum payments for all the cards. 4. Decide how much money you can come up with each month, in addition to the total minimum payments on all your credit cards, to apply to your credit card debt. If you don't believe you can afford to pay any additional amounts over the minimum payment, it's time to do a budget and find ways to cut your expenses. 5. Each month, pay the minimum balance on each credit card except the one with the highest interest rate. On the credit card with the highest interest rate, pay the minimum balance PLUS the additional amount you've identified to reduce your credit card debt each month. 6. Continue to do this until the first credit card (the one with the highest interest rate) is paid off entirely. Then take the amount you were paying on that credit card (which is now paid off) plus the amount of the minimum balance on the second credit card, and apply the total to the second credit card each month until the balance is paid off, continuing to pay the minimum balance on all the other credit cards.
7. Continue crunching your payments on the credit card with the highest interest rate as described above, until all credit card debts are paid off. Some financial experts recommend paying off the credit cards with the lowest balances first, rather than working on those with the highest interest rate. Others disagree with that approach because although it might make you feel better to see the number of credit cards with balances decline, that good feeling will cost you money. Balances with higher interest rates accumulate interest costs more quickly, meaning you pay more to the credit card company in interest and less in actually paying down the principal amount that you owe. Take advantage of every trick in the book to make your credit card debt elimination easier and quicker. For example: 1. Call every one of your credit card companies and request a lower interest rate. You may be surprised at how quickly some of them will agree. Lower interest rates mean you can eliminate your credit card debt more quickly without increasing your payments. 2. If your credit card companies are not willing to reduce your interest rate, shop around for a new card with a favorable rate that will allow you to transfer your balance. Do your homework carefully to make sure you can pay off the balance before the introductory rate offer expires. Consolidate Credit Card Debt Choosing to consolidate credit card debt is one of the most common ways Americans decide to solve their excessive account balance problems. Individuals accumulate charge card balances by getting caught up in the ease of paying via the plastic promise. Before one realizes it, more is owed than can be afforded to be paid each month on multiple balances. To attempt to get out of the pit created, the borrower may choose to consolidate credit card debts. This means that all charge account balances are rolled into one balance with one monthly payment using a lender whose services target those needing their help in this manner or by obtaining a personal loan. Before choosing to combine multiple account balances, the borrower should reevaluate his or her spending habits so the problem won't repeat itself. They should seek some financial counseling and consider
a strict budget. Credit debt elimination services are available in many different forms including debt management, settlement, consolidation, consumer credit counseling, and bankruptcy proceedings. A plan can be serviced by a non-profit organization or an agency with experience in finance related options. Most agencies have options for consumers who are still in the midst of making payments to their creditors, or have been unable to pay for several months. Depending on each individual or circumstance determines the appropriate approach to managing and eliminating debts. There are a host of agencies involved in this type of service. Most people in deep financial debt need monthly cash relief. When a new credit debt elimination loan is taken out, all of the creditors can be paid in full, and a new lower interest rate loan is then paid off with lower monthly payments than paying the minimum monthly payments on the combined total from each creditor. This saves the debtor a tremendous amount of money monthly and relieves the burden of financial stress while enabling to maintain a realistic budget. Watch Out For Scams But, be careful when you looking for this kind of programs. There are many scams out there, they know it, I know it and you most definitely should know it. Here is one as I read it in an article. For a stiff upfront fee, as much as $2,500 or more, one can get a certificate to take to your bank that supposedly eliminates your obligation to repay your mortgage, credit cards or other debt. What the victim gets is an entirely bogus document that starts them down the road to trashed credit, foreclosure, financial ruin and possible federal fraud charges. Desperately people fall for this kind of treatment and then they start getting collections notices. This is a growing problem, particularly in the past 2 years. These kinds of scams have proliferated to the point that the Federal Government has sent out alerts to the banks they regulate. The warnings tell banks not only to be on guard against this scam but also to confiscate any documents that the borrower presents and send a suspicious activity report to the FBI. If people weren’t so willing to grasp for quick-fix solutions for their financial problems, rather than doing the hard work necessary to solve them, they could smell this con coming a mile away. Compare Debt Consolidation Programs Compare debt consolidation programs by gathering the facts and
determining which is more advantageous. You can begin to compare debt consolidation program information to others by researching the offered programs and looking at how they operate. To make comparisons, one must take into consideration all the legal ramifications of dealing with their outstanding bills. In so doing, they can take the first step by listing assets against liabilities and come up with a plan of repayment. Those who compare debt consolidation programs are happiest in the long run with their decision. Those who don't take the time for comparison may end up getting further into debt. When someone is wise enough to take time to compare debt consolidation program, they will find that reduction companies can offer many different services at many different costs. Some of these services are debt reduction, consolidation, negotiation, settlement, bankruptcy, credit repair clinics, and helping consumers to understand their credit reports. A wise consumer will count the cost up-front, and gain an understanding of what is the best choice for them. Debt Negotiation Don’t underestimate the benefit of debt negotiation. Debt negotiation is the process by which a debtor or third party representative negotiates a credit balance down 50-80%, for the intent of paying in full as per the agreement. Debt negotiations typically occur when a debtor has been late or unable to make payments on a balance due for several months, and the creditor feels this pattern will not change and wants to settle for a lesser amount. Debt negotiations are the last resort a creditor will accept before bankruptcy proceedings for the debtor begin. A good candidate for bankruptcy makes a good candidate for negotiating. A good candidate for bankruptcy and negotiating is an individual who has mostly unsecured due balances. Unsecured balance is that which has no collateral pledged as security for repaying a debt. On a mortgage loan, a house is pledged as security in the event that the loan is not paid according to written agreement. Bankruptcy candidates are also those debtors that have been late on payments or have stopped making payments altogether to their creditors. Finally bankruptcy candidates are those that have no foreseen income increases in the future, and therefore will not be able to pay off their debts. Thus these people meet the criteria for debt negotiations. During a negotiating session, if the creditor is aware that the debtor is
a bankruptcy candidate they may settle for less than earlier quoted. A creditor would rather get a lower settlement than nothing at all if the bankruptcy proceedings begin. The debtor must get in writing at the debt negotiation session the terms to which the settlement is to be paid, either in one lump sum, or in a short term payment plan. Once the money is received in full as per debt negotiation written agreement, the balance is considered settled and paid in full. The harassing phone calls will stop, the collection letters will cease, and the debtor can live in peace again, knowing not to make the same mistakes twice. When negotiating doesn't go so well, or the creditor is not willing to lower the balance to an amount that the debtor can pay off, a third party may be needed. There are services and agencies that will represent the debtor to creditors. Since they have frequent contact with creditors, they may be able to get a better settlement than the debtor can. The debt negotiation settlement agency may request a fee from the debtor for this service, or may take a percentage off of the amount recovered to the creditor as commission for the service. It is a wise choice to have debt negotiations and get the burden of debt settled as quickly as possible. Bankruptcy debt elimination, the experts say, should be the last resort for people whose indebtedness seems insurmountable in spite of their best attempts to pay off the outstanding amounts. Obviously, the decision to pursue this option is not to be made lightly. Discuss your decision to go with bankruptcy debt elimination with a bankruptcy lawyer who will spell out the details of the process. Change Your Life The idea to legally eliminate credit card debts is a first step toward changing one's life and attitude toward money. Consolidating bills into one monthly payment from many is one solution to the problem of due charge account balances. To legally eliminate credit card debts through consolidation or some other legal means is to eliminate those annoying telephone calls during dinner or at eight o'clock on Saturday morning. People who work at eliminating their bills are deciding to take a stand for financial freedom and their future. The plan to erase due balances is the plan that allows individuals to begin a new level of fiscal responsibility that will pay dividends in the retirement years by providing fiscal solvency and peace of mind. The idea to legally eliminate credit card debts shows one has an understanding of fiscal soundness and the value of living debt-free. These people should look
for support from their family and friends and pray that God's patience and wisdom be upon them. It will take a long time and can be a slow process, but the effort will be worthwhile when the debtor is set free. Research & Edited By Gabriel Kazakias 12/27/07 gabe314@optonline.com
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