Bankruptcy & Foreclosures

If you’ve been following along with my debt relief blog posts then you’ve probably already noticed a pattern of pointing the finger of blame at the credit card industry whenever the topic of American financial woes enters the equation. What you may not have known is that the average American household with at least a single credit card has approximately $9000 in credit card debt!

This number is stifling in its own right but I’ve dug up some even more alarming statistics that I believe you’ll find helpful.

Total US consumer debt (which does not include mortgage debt) reached $2.46 Trillion in June 2007, up from $2.398 Trillion at the end of 2006 (Source: Federal Reserve)

Total US consumer revolving debt reached $904 Billion in June 2007, up from $879 billion at the end of 2006 (Source: Federal Reserve)

On average, today’s consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.). Not included are savings and checking accounts (typically not reported to a credit bureau). Of these 13 credit obligations, 9 are likely to be credit cards and 4 are likely to be installment loans. (Source: myfico.com)

The typical consumer has access to approximately $19,000 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 7 are using 80% or more of their credit card limit. (Source: myfico.com)

U.S. consumers racked up an estimated $51 billion worth of fast food on their personal credit and debit cards in 2006, compared to $33.2 billion one-year ago. (Source: www.carddata.com)

Nearly 1 in every 3 consumer purchases in the United States is made with a payment card—including credit, debit, and prepaid products. (Source: Visa USA)

Consumers carry more than 1 billion Visa cards worldwide—more than 450 million of those cards are in the United States (Source: Visa USA)

U.S. Visa cardholders alone conduct more than $1 trillion in annual volume (Source: Visa USA)

The bottom line: Credit cards don’t go off and charge themselves! Be smart with your plastic so that you become the exception, not the rule in these alarming statistics.

Ever receive one of those tantalizing credit card offers in the mail that promises a much lower rate than the card that currently holds your balance? You read through the fine print and find out that they will allow you to transfer your current balance and that the lower rate promised isn’t just some introductory offer. The only catch is that this card slaps you with an annual fee to be a member.

In the past I’ve often steered people away from participating in such offers on account of the tried and true logic that you shouldn’t have to pay to be a member of any credit card offer- after all, you pay them enough as it is through interest right? Not so fast. In this day and age of interest rates that can sometimes reach as high as 28%, it may actually be in some consumer’s best interest to consider dropping a few dollars on an annual fee in effort to slash away interest points. This is especially true for consumers who regularly maintain a balance on their cards (where they are actually paying interest on their balance on a monthly basis).

The trick to understanding if you are that type of consumer has been made a lot easier of late as there are online calculators that do the computation for you. By simply punching in your data, the calculator determines for you whether a lower rate would be worth paying the annual fee over.

Remember that such tools are readily available for everyone to use on the internet. The first step to successful debt management is often remembering to use such free resources to your advantage. I have found using the rate/ annual fee calculator that AOL offers in their Money & Finance page intuitive and with great results. It can be aceessed directly by clicking here.

Credit Counseling is big business in the Unites States and has been increasing in popularity each year over the past decade. Further prodding this statistic along is the fact that a recent federal law aiming to crack down on bankruptcy filing has pushed countless others into the counseling direction.

These new rules not only require extra steps before filing, but the consumer must first undergo credit counseling before seeking bankruptcy-court protection!

Naturally, finding out that bankruptcy is not an option without first attempting to get help sends many into a panic. The important thing to keep in mind is that the counseling may actually help get things in order and hence avoid the bankruptcy process entirely.

I’ve been spending a lot of time on the Federal Trade Commission’s fantastic site of late and fount some of their advice in selecting a credit counselor that’s right for you to be priceless.

Important Questions to Ask When Choosing a Credit Counselor

What services do you offer?
Look for an organization that offers a range of services, including budget counseling, savings and debt management classes, and counselors who are trained and certified in consumer credit, money and debt management, and budgeting. Counselors should discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems now and avoid others in the future. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation. Debt Management Plans (DMP’s) are not for everyone. You should sign up for a DMP only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.

If you were on a DMP with an organization that closed down, ask any credit counselor that you are considering what they can do to help you retain the benefits of your DMP.

Are you licensed to offer your services in my state?
Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.

Do you offer free information?
Avoid organizations that charge for information about the nature of their services.

Will I have a formal written agreement or contract with you?
Don’t commit to participate in a Debt Management Plan over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you are told you need to act immediately, consider finding another organization.

What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, which one? If not, how are they trained?
Try to use an organization whose counselors are trained by an outside organization that is not affiliated with creditors.

Have other consumers been satisfied with the service that they received?
Once you’ve identified credit counseling organizations that suit your needs, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. These organizations can tell you if consumers have filed complaints about them. The absence of complaints doesn’t guarantee legitimacy, but complaints from other consumers may alert you to problems.

What are your fees?
Are there set-up and/or monthly fees?
Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you’re concerned that you cannot afford to pay your fees, ask if the organization waives or reduces fees when providing counseling to consumers in your circumstances. If an organization won’t help you because you can’t afford to pay, look elsewhere for help.

How are your employees paid?
Are the employees or the organization paid more if I sign up for certain services, pay a fee, or make a contribution to your organization?
Employees who are counseling you to purchase certain services may receive a commission if you choose to sign up for those services. Many credit counseling organizations receive additional compensation from creditors if you enroll in a DMP. If the organization will not disclose what compensation it receives from creditors, or how employees are compensated, go elsewhere for help.

What do you do to keep personal information about your clients (for example, name, address, phone number, and financial information) confidential and secure?
Credit counseling organizations handle your most sensitive financial information. The organization should have safeguards in place to protect the privacy of this information and prevent misuse.

Asking the right questions can make all the difference in a situation as sensitive as mandatory counseling can be. Like always, I advise heading to the FTC’s site here.