Credit Card Debt Management

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.

With an unstable job market and increasing college costs, it’s a hard time to be a college student. It’s no wonder credit card companies’ aggressive on-campus marketing campaigns appear so enticing to students. A U.S. PIRG survey of 1,500 students at 40 colleges in 14 states revealed the following:

-2/3 of college students have at least one credit card.

-55% use their credit card for daily expenses.

-Average balance for students with no parental help = $1,301

-Average balance for senior students = $2,623

Granted, student credit card debt is nothing compared to student loan debt. However, the credit card debt certainly won’t help pay off the student loan debt or establish financial stability after college. Furthermore, experts say accepting credit that is essentially unaffordable in the college years marks the beginning of a highly damaging pattern of behavior that contributed to the recent housing crisis.

Silicon Valley’s Mercury News cited 19-year-old Holly Jackson as saying she feels overwhelmed by her credit card bills and may need to pick up a second job.

“I’m learning my lesson,” she said. “After I pay these off, I don’t plan on getting more. They’re awful.”

Undeniably, credit card companies themselves are not without fault. Their aggressive and misleading on-campus marketing campaigns have been legendary. Sen. Robert Menendez (D-NJ) recently proposed a bill that would require consumers under age 21 to “opt in” before they could be the target of credit card solicitations. Additionally, universities are stepping in to provide personal finance education. These are certainly steps in the right direction.