Credit Card Debt Management

When you apply for a credit card you are probably thinking about all the good this can do for you. For instance, you may be excited about the big purchases you can make, as well as the reward points you will be collecting month in and month out. But at the same time you need to be smart and realize that your credit card can drag you down over time if you let it. Believe it or not, this can happen in more ways than one.

While you are thinking about all the benefits of your credit card you may be overlooking the downfalls that will eventually get you into a lot of trouble. Take for instance a consumer who is obsessed with collecting as many reward points as he can. This may sound good on the surface, but guess what? If you take this to extremes you could end up in a lot of credit card debt. Sure, you will have tons of points to cash in but you will also have mounting debt that is difficult to get rid of. Are you willing to take this tradeoff? Hopefully not.

Certain details of your credit card can also drag you down. A high APR, for example, can cause you more harm than good if you are not in the habit of paying off your bill each month. Don’t take this detail lightly because it can cause you a lot of headaches in a relatively short period of time.

It is important that you rely on your credit card for the good that it can bring into your life. If you see that your plastic is dragging you down you need to think long and hard about how to move forward. You may be better off obtaining a new credit card, or doing without any for the time being.

It can be hard to pinch pennies when times get tough, but with a few strategic steps, you can pay off debt — and faster than you ever imagined!

Stop the madness! First and foremost, you must stop piling on debt. Reduce expenses by cutting out anything nonessential. Try using cash instead of plastic. Studies have shown a direct link between cash and lower consumer spending.

Get your interest rate as low as possible. Paying less interest means paying more toward the principal. However, it can be risky to open a new credit card in order to transfer your balance to a lower rate. This can be a real ding on your credit report. You should ideally transfer your balance to a lower-interest credit card that is already open in your name. If that’s not an option, look into getting some low-APR convenience checks on one of your other lines of credit and use the checks to pay off your other creditors, thus consolidating your debt under a lower interest rate.

Pay as much as possible toward the balance. Instead of maxing out your credit cards, max out the amount of money you throw at them each month. With the money saved on your many expenses, you can expect to make major headway on those credit card balances in no time. Paying off debt can resemble a marathon race, but persistence, patience and having a plan will help you win in the end.

What will happen to the credit card industry? Is it a giant, over-inflated bubble just waiting to pop and make an even bigger mess than the housing crisis? Some say yes, definitely — you decide whether they’re doomsayers or realists.

Los Angeles CityBeat had an interesting article on the topic recently. Essentially, people are using credit cards to pay their mortgages instead of using HELOCs to pay off credit card debt. Not only that, but more people than ever before are paying their credit card bills late.

Capital One, one of the biggest card issuers, wrote off $1.9 billion in bad credit card debt in the last quarter of 2007 alone. Among other savory morsels, the article points out the following:

“By last fall, the major banks were setting aside billions for loan-loss reserves while anticipating an increase of 20 percent in non-payments over the next two to four quarters.”

Marketing is more aggressive than ever. Credit cards are a more integral part of our economy than ever before. And self-control when it comes to spending is probably at its weakest point in history. Thrifty spending and “rainy day funds” are no longer the basis of our society. Instead, society’s obsession is overspending. Take, for example, this bone-chilling portion from the CityBeat article:

“It’s become habit for many to spend more than they have. As a result, overall U.S. credit card debt grew by 435% from 2002 to year-end 2007, from $211 billion to approximately $915 billion… As recently as the 1980s, the national savings rate was 10 to 11 percent. Since 2005, Americans have saved less than 1 percent of their disposable incomes. In fact, the most recent figures from March show that the savings rate is negative, below zero. And also in March the government reported that for the first time since the Depression, Americans owe more on their homes than they have in equity. Essentially, on average, America is broke and its credit cards played a dominant role in getting there.”

I suppose it’s inevitable that there will be some negative consequence from America’s stubborn chase after foolishness. It’s debatable whether the consequences will be to the completely ruinous extent this article claims is possible. Regardless, in the end, it’s up to each individual consumer to act wisely now (i.e., spend less, save more) and determine how badly they will be affected by the fallout.