Credit Card Debt Management

Did you know there are different types of credit cards? Secured credit cards are quite a bit different from unsecured credit cards. They are also sometimes the only option for those with tarnished credit or no credit at all.

Secured credit cards have an annual fee, whereas such is not always the case with unsecured cards. The biggest difference, however, lies in the fact that secured credit cards are backed up with “collateral” — property that can be confiscated if the loan goes into default. Essentially, a secured credit card is typically issued by a bank, with which a cash deposit must be made as collateral. The credit card is then set up with a limit typically equal to the amount of cash deposited.

In the event that cardholders quit paying their bill, the bank keeps the deposit. Once deposited, the money attached to a secured credit card can usually not be tampered with as long as the credit card is open and active. The money can, however, draw interest, which is a good feature to look for in a secured credit card offer.

Another important feature to look for is whether the card issuer reports to all three credit bureaus. Even though a secured credit card functions differently from an unsecured card, it still impacts your credit report and credit score the same way. Responsible credit card management reaps big rewards, while irresponsible management dings up the credit history. The good news is that secured credit cards can provide a direct path, over time, to easier approval for unsecured credit cards with no annual fee. So if your credit is dinged up from bad choices made in the past, or maybe you’ve just weathered a divorce or bankruptcy, you may be a prime candidate for a secured credit card. And with a little patience and perseverance, you can rebuild your good credit.

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.

Well, we speculated that the credit card industry might be sinking, or at least receding, and that card companies may need to cut back on customer rewards. Guess what — it’s happening.

A recent Newsweek article how American Express and Citibank have cut back their rewards. Specifically, that means no more 5 percent and double-cashback rewards for cardholders who buy groceries and gas. It’s a fine time to yank that reward, given that consumers are increasingly buying only commodities like groceries and gas instead of luxury splurge items. Cardholders trying to navigate the murky waters of credit card rewards nowadays are going to find the ride much bumpier and will probably meet with much more resistance.

One of the cards getting chopped is the Citi Dividend MasterCard, from 5 percent on everyday purchases to only 2 percent (though it’s adding utilities and convenience stores to the list of everyday purchases). HSBC’s Direct Rewards MasterCard is still offering a 5 percent rebate at gas pumps, grocery stores and drugstores, though it is also a potential candidate for a cutback in the future.

The key to making credit card rewards work for you in tough economic times is to go for cashback rewards. Everybody needs a little cash every now and then, right? However, really consider whether it’s wise to put all your gas or groceries on the card just to rack up a relatively paltry cash reward and put yourself at risk for interest charges.

Essentially, by charging “everyday purchases,” you could be flirting with disaster. Is it possible that you might have $150 cash available for gas this week, but choose to use the card instead for its rewards benefit. Then, when the bill comes due, you don’t have that cash to pay it in full (unless you’ve been a savvy saver). By not paying in full, you subject yourself to interest charges that could well exceed any “cashback rewards” you may have earned.

Furthermore, you may not even see the cash rewards for a while, because some companies require it to accumulate to a certain amount. So bottom line, think about it. While these cash rewards are touted by marketing gurus as “discounts” on gas, groceries and utilities, the ultimate discount may just be to go ahead and pay cash to prevent any possible interest charges.