Credit Card Debt: A Problem in the United States

Credit card debt is a major problem in the United States

The average household with at least one credit card carries an average of $9,498, nearly twice the level of a decade ago.

Signs You're in Trouble

-You routinely need to pay for your basic expenses -- food, utilities and transportation -- on plastic or use a cash advance because you don't have enough cash at the end of the month.

-You are only able to pay the minimum balance on your cards.

-You are paying a higher-than-average interest rate on your cards -- about 14 percent -- and are unable to find a lower rate card because of your credit score.

-You've been caught in a universal default situation and you are now unable to handle your credit card balances because of rate increases across the board.

-You are unable to contribute to a savings program, like a savings account or IRA

-Perhaps most importantly, you are lying to someone you love about how much you charge or how much you owe.

Getting Out of Debt

Cut the Cards
If you are in a hole, you have to stop digging. Don't take out another credit card to pay off the ones you have. This can be tempting because 5.3 billion credit card solicitations are sent out every year. You may need to make some lifestyle changes, whether this means not eating out or realizing you can't afford the car you drive or the house you live in. In extreme cases you may need to change both.

Pay off High Interest Cards First
Pay off the cards with the highest interest rates first. Don't close out the cards, pay them off. It's the fastest thing you can do to improve your credit rating. As soon as you start lowering the debt figure, your rating goes up. It happens as quickly as 60 days to 90 days. Then you can call credit card companies to ask for a lower rate.

Ask for Help
Your friends and family need to know that you are paying off this debt so that they can be supportive and understand that you are cutting back on expenses. Also, some people may need to get professional help by going to a credit counselor who can help work with credit card companies to make a payment plan. You can check with your state attorney general's office to find a credit counselor.

Article found at http://abcnews.go.com/GMA/story?id=1921876&page=1

Credit Card Basics

Credit card companies are in the business of making money. Obviously, they do not offer loans and lines of credit to consumers out of the goodness of their heart. They expect you to use their cards and to keep balances on them over a period of time, thereby providing them cash in the form of finance charges. Luckily, it is possible to outsmart the credit card companies at their own game by taking advantage of the best credit card offers, such as cash back rewards and balance transfer options.

Credit card companies are in the business of luring customers in to applying for their cards. Common hooks include low interest offers and promises of instant approval. While there is nothing inherently wrong with these easy and cheap credit cards, consumers need to weigh their options carefully. For example, those cardholders that spend regularly on their credit card but are unable to pay the debt off each month should choose a credit card with a low interest rate. It is best to look through the many options available to find the one with the lowest APR for purchases. At the same time, the cautious consumer sets a goal for when the balance will ultimately be paid in full in order to avoid becoming overrun by debt.

Credit card companies are counting on consumers to use only their card to make all of their purchases. Consumers that dedicate all of their purchases to just one card can be making a mistake - while making the credit card company very happy. For example, when a consumer uses a balance transfer card to make purchases, they are playing right into the credit card company's hand. When the consumer pays back these loans, the payments are purposely directed by the credit card company toward the interest-free or low interest loans. In this way, the high-interest loan remains on the card longer - building additional finance charges the entire time. Therefore, a consumer utilizing a balance transfer card should use it for just that - balance transfers, and nothing else.

The same concept is true with low-interest cards. A card with a special low interest rate on purchases should be used when making purchases. Similarly, a card with a 0% APR can actually be used to make money for the consumer. Consider this: what if a consumer withdrew all of the money from his or her credit card with a 0.00% APR introductory offer and placed the money in the bank? While in the bank, that money collects interest. When it comes time to pay off the balance (which is when the introductory period ends), the necessary money can be sent to pay off the credit card and the rest of the money can be kept as profit.

Choosing the right card for the right purpose will ensure more money is saved. And, if executed properly, can even make money for the credit cardholder.

Credit cards are vying for consumers to use their card. After all, the more people out their spending money on their cards, the more finance charges they collect. In order to persuade new customers to switch to their card, many offer special introductory balance transfer offers. There hope is that consumers will transfer their balances and get rid of the old card altogether.

Smart consumers can take advantage of this battle. Those carrying balances on other credit cards can transfer their balances to those with special introductory APRs on balance transfers. Ideally, the balance transfer card should not charge fees for balance transfers. In addition, the longer the balance transfer lasts, the better the card. By transferring balances from cards with higher interest rates to those with 0.00% interest rates, the consumer is essentially making the new credit card company pay off the debt owned to the other card. Once again, this balance transfer card should never be used for purchases, unless the introductory rate also applies to purchases.

For those that do pay their entire balance in full at the end of each billing cycle, it is important to look at the other features offered by the credit cards. Many offer special rewards programs, which include access to gift certificates to restaurants, theaters, and retailers. Yet others offer free or reduced travel, with many working in conjunction with airline miles rewards. Still others provide cold, hard cash rewards to cardholders. Rewards credit cards tend to have higher interest rates than those without a special program. Therefore, the smart consumer will only use these cards if he or she can pay the balance in full each month. In this case, the consumer can make money off his or her credit card.

It is best for consumers to stick with only major credit cards rather than store cards. Store cards offer attractive instant approval programs, making it tempting for consumers to apply for a card and spend, spend, spend at the store - all on the same day. This type of impulse spending is exactly what the stores are hoping for. To make it even worse, store credit cards have higher interest rates than major credit cards. The only time these cards should be used is when they offer special discounts at the store when applying for the card and the consumer had already planned to make a large purchase there. The balance needs to then be paid off immediately in order to avoid high finance charges. Once again, this forces the credit card to work for the consumer rather than the consumer working to pay off large debts.

Article found at http://www.creditcardassist.com/cardbasics.html

Credit Cards: How many is too many???

You may sift through your stack of credit cards and wonder if you have too many. Or, if you're considering opening new credit accounts, you want to be sure it won't affect your credit before doing so. The best number of credit cards is one of those questions that doesn't have a one-size-fits-all type of answer.

 

Do You Have Difficulty Managing Credit Cards?

 The more credit cards you have and actively use, the harder it will be to manage your payments. You need to have the ability to track your credit cards, including payment due dates, interest rates, fees, and charges you've made. This is easier with just a few credit cards – like one to three – but becomes increasingly difficult as the number of credit cards exceeds five. Still, it depends on your own ability to manage your credit cards.
You can use an online tool like TrackCards to help manage your credit card payments.

Do You Have Too Many Cards?

If you're just starting out with credit or rebuilding your credit, one credit card is enough. You need successful experience managing a credit card before taking on additional credit responsibilities. As you get that successful experience and consider opening additional credit cards, think about your ability to pay and track your credit cards.  Before you close any credit cards, first make sure the cards you close won't hurt your credit score.

Is Your Credit Utilization High?

Your credit utilization (30% of your credit score) is your total debt divided by your total credit. So, for example, if your credit card limits total $5000 and your credit card balances total $2000, then your credit utilization is 40%. Ideally, your credit utilization should be less than 30%.  The more credit cards you have, the more temptation you have to charge purchases. As your credit card balances increase, your credit utilization goes up. So, one way to keep your credit utilization down is to keep your number of credit cards and balances down.

Just keep in mind that there is not a set number... only you can decide how many cards you can balance!

Information found at http://credit.about.com/od/usingcreditcards/a/numcreditcards.htm

Credit Card Tips

Credit cards make spending far more convenient for the consumer than writing checks or paying with cash. Nearly every business accepts credit cards, even fast food restaurants. So, more and more, people are utilizing their credit cards and leaving their cash and checks at home. But, there are some risks involved with using credit cards - namely the ability to easily creep further and further into debt without realizing it. Luckily, there are many steps a credit card holder can follow in order to prevent falling so far into debt that there is no way out.


Don't Ignore the Credit Limit
Nearly every credit card, whether they are airline credit cards, instant approval credit cards, reward credit cards, or credit cards for college students, has a credit limit. As a responsible cardholder, it is important to be aware of this credit limit and to never overspend. Going over the credit limit can result in hefty fees and also removes the freedom and flexibility a credit card allows because there is no room left for additional purchases. This can be particularly upsetting if an emergency situation should arise.

Some credit cards do not have a predetermined credit limit. For these cards, and even for cards that do have a set limit, it is a good idea to establish a personal credit limit. This credit limit should be well below the credit limit established by the credit card company. Remember, most credit card companies calculate the minimum monthly payment based on a percentage of the balance. Often, this is 2%. If the balance becomes too high, it may be difficult to pay the minimum balance.

Of course, paying just the minimum balance each month is not enough to get out of credit card debt. Therefore, the cardholder should take care to only charge what he or she is able to pay back within a reasonable time. In addition, the credit limit set by the credit cardholder should be substantially below the credit limit established by the credit card company. That way, there will always be room left on the card in case of an emergency.


Avoid Unnecessary Spending
Even cheap credit cards with low APRs and little or no fees can create an insurmountable credit card debt if not watched closely. It is easy for cardholders to get swept away by the shopping bug, particularly when it is so easy to do with a credit card. One way to avoid impulse shopping is to simply leave the credit card at home. Many people carry several credit cards with them at all times - this is only asking for trouble. Keeping the cards at home makes it easier to resist temptation. Of course, credit cards are good in emergency situations and, as such, many cardholders want to keep a card with them for this purpose. If this is the case, the cardholder should only carry a card with a low credit limit so large purchases cannot be made.

Cardholders also need to be weary of high-pressure sales. Radio and television ads are designed to make products seem irresistible. Cardholders should give it some time before deciding to make a purchase and allow themselves to think it through. In fact, shopping in general should be avoided for those that are shopaholics. The word "Sale" gets many cardholders' pulses racing. Consumers need to be sure to avoid making purchases just because they can save some money with a coupon or a discount. If this means avoiding the stores, then that is what needs to be done.

Another option is to use a secured credit card. Many credit cards for college students are secured. This means the money is sent to the credit card before it is used. Once the available money is used up, the card cannot be used anymore until more funds are added. These cards can make it much easier to keep track of expenses and prevent overspending. Credit cards with a low APR are also a good choice. These cheap credit cards help prevent creating large finance charges, which only serve to make the debt more difficult to overcome. Carrying only cash is another great way to keep credit card spending to a minimum.

Along with determining a personal credit limit, it is also a good idea to create a budget and to make a list of things that need to be purchased. Creating an itemized list with projected costs can help the cardholder determine what items really do not need to be purchased. The list should also be adhered to in order to prevent impulse buying. It is also a good idea to save receipts and to review them weekly and monthly. This gives the cardholder a good idea of how much he or she is truly spending on the credit card.


Choose the Right Card
There are many cards to choose from, but it is best to learn as much as possible about each card. For business owners, it is important to compare business credit cards. For those looking for a reward credit card, it is a good idea to sort through them to find the best cash back credit cards or best reward credit cards. On the other hand, those with balances on cards with high APRs should seek out the best balance transfer cards. The credit card should work for the cardholder, not against him. Therefore, the cardholder should actively seek the card that has the most to offer and that best fits his lifestyle.

Article found at www.creditcardassist.com/tips.html

Prevent and Repair Credit Card Debt

A credit card is a very delicate instrument because it requires a level of responsibility and financial maturity that not all consumers have. After all, using a credit card means paying off the debt within the next month, throughout the year, or simply in a series of periodic payments. Of course, finance charges are building up in the meantime and, if you fail to make a scheduled payment, your credit report will suffer. The following article describes ways for consumers to avoid building up credit card debt, and if necessary, methods to repair the damage already incurred from excessive credit card debt.

Keeping Grounded in Reality

Whether the cardholder intends to pay the credit card balance off within a short period of time or to stretch it out for awhile, he or she must be continually aware that this money is borrowed money. Often, credit card holders look at their credit as additional cash in their pocket. This is when the troubles start. While using this credit as if it is earned income, it is building up finance charges and increasing the cardholder's debt burden.

This is why it is very easy to lose control of a credit card. It requires discipline and knowledge of the basics of personal finance in order to prevent the creation of an overwhelming debt. This is why young adults are typically the ones that get into the greatest amount of trouble when it comes to credit card debt.

Estimate Your Earnings

So, if a cardholder finds himself in the difficult situation of owing money that he won't be able to pay back any time soon, he needs to establish some parameters in his life. To do this, he must first make an estimate of his annual earnings.

Once this has been determined, he must then calculate all of the different costs of maintaining his lifestyle. This includes ALL expenditures -- rent, insurance, gasoline, car maintenance, food, clothes, medicines, entertainment, school, and life's little luxuries.

If, after making this estimate, the cardholder finds that he spends more money than he earns, then there is a huge problem. The reality is that he has been living an illusion provided by the credit card. If the cardholder makes more than he spends - great! This means he will not have to make big adjustments in his life in order to pay the card.

Create a Plan

Whether you are living above your means or not, you still need to create a plan. So the primary question to ask is how am I going to pay for the card?

The easiest way to develop a plan for paying off the card is to determine a fixed amount of money that you can pay off each month. The amount you select should allow you to still pay your other bills. After all, it doesn't make sense to stop paying an insurance policy, for instance, in order to pay off a credit card debt. Similarly, you should still allow yourself some money each month to buy the "extras" that you enjoy if there is enough money leftover to do so.

Unfortunately, all of this planning may not be enough for the bank if you have already fallen behind on your payments. In this case, the credit card company may cancel the credit card and consequently report you to the credit bureaus. That's a pretty serious situation because it damages your credit and takes away the convenience the credit card provides. After all, without a credit card, you cannot make purchases online with many retailers and you won't even be able to make reservations for a car rental or for items such as airline tickets. Therefore, it is absolutely critical to develop a plan before you start to fall behind in your payments.

Take Advantage of Prepaid Debit Cards

If you have really hurt your credit or you know you simply cannot be trusted to monitor your spending, you might want to consider applying for a prepaid debit card. With prepaid debit cards, you can still enjoy the convenience of card ownership but your spending will simply be restricted to the amount of money you prepaid on the card ahead of time, or a portion of that amount. This can help ensure that you spend only what you can pay for. Equally as important, there are several prepaid debit cards that will actually report the activity of their customers to the 4 major credit bureaus, helping to improve or reestablish your credit if you have previously damaged it from failure to pay your debts.

Once you have proven yourself to be reliable with your prepaid card, which may take a couple years, the bank may offer an upgrade to an unsecured credit card. In this case, you will not longer need to make payments ahead of time and an actual line of credit will be extended to you.

Article found on http://www.creditcardassist.com/

Five Simple Ways to Prevent Credit Card Debt

Article by Jeremy M. Simon


1. Establish a budget and then follow that budget exactly.  In other words, don't be tempted to charge that plasma TV to your credit card on a whim when you haven't budgeted for it this month.


2. Carry a credit card balance for no longer than six months. Beyond that point, the compounding of simple interest can produce a very expensive balance to pay off.  If it helps, think of your credit card balance as a snowball that grows larger as it rolls downhill.


3. Know what you're doing with reward credit cards. Holders of these can end up spending more than the reward itself is worth if they don't pay attention to the fees and interest associated with their credit card.


4. Get a low interest credit card if your credit card's interest rate is excessive. The better your credit, the lower the rate for whichy you will qualify.


5. Be aware that balance transfer credit cards' teaser rates won't last forever. Six months is common now. The "normal" rate will return sooner than you think, so use that interest-free period to aggressively pay down balances.


Article found on http://www.creditcards.com/

Credit Cards- The Do's and Don'ts

Most of us aren't born knowing how to use credit cards. Still, it’s important to learn the rules of the credit card game – preferably before you start playing. These do’s and don’ts of credit card usage encourage healthy spending habits for new and experienced credit card users alike.

Don't  

• Use your credit card to make everyday purchases. Items like food, clothing, and gas shouldn't be purchased with a credit card. Using your credit card as a substitute for cash is a habit that can quickly lead to debt. For ordinary puchases, leave your credit card in your wallet and use cash or debit card instead.
• Get into the habit of making minimum-only payments. Making only the minimum payment each month increases the amount of time it will take to pay off your debt. It also increases the amount of interest you end up paying. To pay your debts off quicker and cheaper, you should pay as much as you can on your balance each month.
Five Reasons to Pay More Than the Minimum
• Use your credit card to buy things you can’t afford. Living a borrowed lifestyle is the quickest way to get into debt. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow, or even next month.
  Spending Habits That Lead To Debt
• Close out a credit card without knowing how your credit will be impacted. There are times when closing a credit card can hurt your credit score. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history.
  Five Credit Cards You Should Never Close

Do  

• Make wise decisions about purchasing items you need versus those you simply want. We’ve all used the word “need” to describe something we really just wanted badly. Using your credit card responsibly means recognizing which things you need and which you just want.
• Let your creditor know in advance if you won’t be able to make your monthly payment on time. The worst thing you can do is simply forgo your credit card payment, no matter the reason. Most creditors will assist you if you let them know before you miss your payment. Simply call your creditor, briefly explain the situation, and ask that any late fees be waived.
  When You Can't Make Your Payment
• Stay within 30% of your credit limit. A large part of your credit score considers the amount of debt you have. Keeping your balances low helps you maintain a good credit score. Not only that, lower balances are easier to manage than those that are higher.
  How Your Credit Score Is Calculated
• Negotiate a lower interest rate. Especially if your current rate is higher than offers you receive. Your interest rate determines how much you pay for carrying a balance on your credit card. Evaluate the interest rate on your credit card periodically to be sure you are getting the best deal possible.
  How to Negotiate a Lower Interest Rate

Article found on http://credit.about.com/od/creditcardbasics/a/dosandonts.htm

How to Eliminate Credit Card Debt

Credit card debt is a major problem in this country. While not everyone has a credit card, those that do typically carry a balance. The interest rate on a credit card balance is usually between 10-30% APR. These high interest rates make it difficult for people to pay down their debt -- especially if only making the minimum payment. In fact, just making minimum payments can make even the smallest balance over a decade to pay off and thousands of dollars in finance charges. It’s no wonder getting out of debt seems so hard.
Fortunately, you can get out of debt. If you follow a few basic steps and put a plan in place, you can work to pay off your debt sooner, with less interest, and improve your credit score in the process.

1. First, list each of your credit cards. You’ll want to include the outstanding balance, interest rate, and minimum payment. This information can easily be found on your last monthly statement.
   
2. Order the cards on the list so that the credit card with the highest interest rate is at the top, and the lowest is at the bottom.
   
3. Total the minimum payments.
   
4. The total monthly minimum is your absolute lowest monthly payment, but remember, we want to pay more than the minimum in order to repay the debt quickly. So, take a look at your budget and see how much extra you can come up with each month in addition to the minimum. Whether it’s an extra $20 a month or $100, every little bit helps.
   
5. As your payments come due, pay the minimum on each card except for the one at the top of your list. Remember, that one has the highest interest rate and it costing you the most money by maintaining a balance. So whatever additional money you budgeted in the previous step, apply that to that card.
   
6. Continue this process until the first card is paid off. When that card is paid off, continue with the minimum payments on the other cards, but now take the amount you were paying on the first card in addition to the minimum payment and apply it to the second card on your list.
   
7. Repeat this process until all cards are paid off.

Why This Works

To understand why a relatively simple process works it’s important to understand how minimum payments work. Minimum payments are calculated as a percentage of the outstanding balance. That means as your card balance slowly decreases, so does your minimum payment. This is why it can take ten years or more to pay off even a small balance if you only make the minimum payment each month.
With this system, your monthly payment is remaining constant regardless of your balance. So each month your required minimum payment may go down, but you’re ignoring that and by doing so you apply more and more money to your principal as time goes on, thus accelerating your debt repayment.
Starting with the highest interest rate ensures you’re targeting the most costly credit up front to minimize the total amount of interest you pay.

A Few More Tips

While this payment strategy will help you get out of debt, you can potentially make things go even faster with a few other tips. First, call your credit card company and ask about getting your rate lowered. This won’t always work, but if you have been on time with your payments and a decent credit score, they may be willing to work with you. It doesn’t hurt to try and it doesn’t cost anything. The worst they can do is say no.
Don’t forget about balance transfers. Again, it isn’t always easy to get credit and the balance transfer deal may not be the best, but if you can find a way to transfer the balance from a card with a 25% APR to a card with an 18% APR, that’s still something. There may be some special 0% offers as well, but they are harder to come by these days and the hidden fees may outweigh the benefit.
Finally, keep in mind that this process still takes time. There is no magic method of paying off debt, so realize that it will still take months or even a few years to become completely debt-free. But what we're doing is putting a process in place to make sure that you can get out of debt as soon as possible. You can speed up the process if you continue to pay even more money towards your debt as your budget allows.

Article found about.com

It's Time to Develop a Budget

You ask people about the importance of developing a budget and most will tell you that it should be done. Yet very few people do it. Why?

Most people are simply not inclined to use spreadsheets, balance checkbooks or lay out a formal budget. There are many reasons for it, but the most important is that we associate “preparing a home budget” with “tedious, boring, complicated and taking too much time”. No wonder we don’t do it!

Making the effort to outline their expenses against their income can have huge rewards. In fact, it’s critical if you want to get out of debt. You need to know where your money is going. You can also identify trivial expenses that when cut out, can leave some money to pay off your debts.

Your budget should include your monthly income, and everything you spend your money on on any given month. Yes, you need to keep track, and we cannot stress it enough. You should also leave room for unexpected expenses that may come up.

You can use spreadsheet software, either from Microsoft ( MS Excel) or a free one from Open Office.org or Google Docs. If however, you don’t feel comfortable using spreadsheet software you can just use a legal-sized pad and a calculator. You don’t really need to get fancy here, the main idea is to know where your money is going.

If you decide to do your own spreadsheet on a piece of paper, divide the page into two columns. In one, list income; on the other one write down all monthly expenses. You may want to refer to your bank statements so you don’t miss any expenses.

In the expenses column make sure you include all your monthly bills like water, phone, gas, car payment, cell phone, groceries, cable, tuition, etc. Then add at least 10% for unexpected expenses, if you can.

Make it a priority to get out of debt. Set a realistic goal to get out of debt and then start saving the money you are now paying on interest. You can live the life of your dreams if you decide to pay off your debts and start saving towards your retirement. You can do it, it takes knowledge (look at the Debt into Wealth program, it’s a must-have to get out of debt in record time), perseverance and discipline.

Don’t listen to people who are deep in debt; look for people who saved money and follow their advice. Use your own judgement when shopping. And decide today that you will do whatever it takes to enjoy a debt-free life. You deserve it!

Article found on www.overcome-debt.com/developing-a-budget

8 Steps to Reducing Credit Card Debt

1. Take stock. Before you start reducing your credit card debt, know where you stand, says Cate Williams, vice president of financial literacy for Money Management International, a large, national credit counseling firm. "A lot of people will say they've got a certain amount of debt -- $9,000, let's say -- when in reality, it's $11,000 or $14,000." You'll never hit your target if you don't know where it is, so be brutally honest with yourself.
Action plan: Write down the debt -- and the interest rate -- on every card you have.

2. Improve your rates. The quickest way to save big on your credit card bills is to negotiate a lower interest rate. If you can shave off even a percentage point or two, you can save hundreds as you pay off your debt. A simple phone call and a polite request may be all it takes. While your credit score will play a large role in whether or not you get a rate cut, it's not the only factor. "Every lender has their own approach to this issue," says Weston. "It never hurts to give it a shot."
Action plan: Call up each credit card company and request lower interest rates.
3. Track your costs. Write down all your regular, committed expenses (mortgage, utilities, insurance, car payments, minimum credit card payments, phone, gym, cable, etc.), and track other variable expenses such as restaurant meals, entertainment and travel. This will serve as the foundation to your budget.
Action plan: Study up to a year's worth of credit card bills and bank statements to get an accurate sense of your monthly spending, and keep tracking your expenses with a notebook or financial software.

Credit card videos
For more on this topic, check out this video: Credit card debt warning signs

4. Create a budget. It's time to take an ax to some of those expenses. The key is to be realistic: You'll have to make some sacrifices, but you don't need to live on bread and water.
"Cutting back can be more effective than cutting out," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, a leading accrediting agency for credit counseling firms. "It's hard to adjust your lifestyle too dramatically, and often, little adjustments can add up to big savings." Cutting out a single pizza dinner each week, ratcheting down your gold-plated cable plan and changing your thermostat by a few degrees can give you the jump start you need. Be sure to give yourself a bit of breathing room in your budget in case an unexpected expense pops up.
Action plan: Write down three ways you can cut back immediately, and cancel or downgrade some services. Divide your monthly discretionary budget into weekly allotments so you'll have a better handle on whether you're staying on track.

5. Choose your payoff strategy. There are two common credit card payoff strategies. The first is to plow all your extra cash into the highest-interest card while paying the minimums on the others -- which is the fastest way, overall, to lower your debt. Once the first card is paid off, you have even more extra cash, and should apply it to the card with the next-highest rate, and so on, creating a debt payoff snowball effect. A second strategy is to pay off your card with the lowest balance first while continuing to pay the minimums on the others. Though this is not the most cost-effective way to banish your debt, it's the fastest way to eliminate debt on a single card, and it can be a psychological boost to eliminate a bill for good.
Action Plan: Choose your strategy, then rank cards in the order you'll pay them off.

6. Stash your plastic. In 2000, MIT researchers took two groups of students and dangled scarce Boston Celtic tickets in front of them. One group was required to pay cash; the other was asked to pay by credit card. The credit card crowd was willing to pay more than twice as much, their research found. "I've seen people save 20 percent when they begin paying with cash," Cunningham says. "They become more contemplative of their purchases."
Action plan: Store your credit cards where you won't have easy access to them -- but don't cancel them. Plan to pay in cash whenever possible.

7. Find your motivation and support. Create concrete goals to stay focused. Maybe getting rid of debt will allow you to save for a down payment on a house, go on a dream vacation or stop worrying about every bill that hits your mailbox. Weston recommends finding a community to swap stories, successes, and challenges. "A forum where you can feel supported -- where you can say ‘I'm so tired of trying to save money' can be really helpful," she says. "Sometimes it can feel really dumb, but it's nice to be with people who are trying to do that same thing you are." There are hundreds of personal finance bloggers and forums where you pull up a virtual chair.
Action plan: Write down your goals and keep them in your wallet or purse. If you get tempted to overspend, take a look at them to remind yourself of the bigger picture.

8. Track your progress. While you don't want to spend every day fretting over your bills, keep an eye on your spending. "Revisit your progress every few months," recommends Williams. "You don't want this to consume your life. It took you awhile to get into debt, and it's going to take you awhile to get out of it."
Action plan: Put reminders in your calendar to check up on your finances. Keep the page with your starting balances, and compare them to check your progress.


Article by Erin Peterson

3 Ways to Eliminate Credit Card Debt

Are you looking for three simple ways to eliminate your credit card debt? The first one is obvious, stop using your credit cards. This may seem like a silly thing to suggest, but the best way to get a handle on your spending is to only spend the cash you have - after you've paid your bills. Second, consider consolidating your credit card debt onto one card - or moving a balance from one card, to one with a lower interest rate. Some people are in a constant cycle of moving to the next 0% interest rate card. This can be a pain, but you'll save a lot of money and buy yourself more time to pay off the debt. Third, start making double payments. If the calculated minimum payment is only on the accrued interest, then you need to make a double payment to hit the principle of the debt. By finally hitting the principle and discontinuing use of the card for purchases, you'll see that balance begin to drop.

Article found on http://www.lowermybills.com/

Credit Card Debt Can Be Hazardous to Your Health

1. Insomnia. Visions of debt collectors banging on doors, negative bank statements, impending lawsuits, foreclosures and repossessions are enough to spook anyone out of a good night's sleep. Sometimes people are able to drift off, only to wake up in the middle of the night wracked with nightmares. Other times, just falling asleep is impossible. Functioning on a couple of hours of sleep is not easy for anyone; imagine how bad it is for those who deal with it for weeks, months or even years.
2. Teeth grinding. Ever been so consumed with a problem that you inadvertently clamp your jaw shut? Many people do this. I once had a client come to me holding a piece of cloth over his mouth, and he kept it there during the entire appointment. When I asked what was wrong, he said he had ground his teeth so badly that they cracked and some fell out. Unable to afford dentistry, all he could do was hide the damage and suffer.
3. Stomachaches. People often exhibit stress through stomach and intestines ailments. In fact, just opening a credit card bill or collection notice can trigger a nasty cramp. Abdominal complaints range from sour tummies requiring daily doses of antacids to debilitating ulcers needing surgery.
4. Weight loss or gain. Some people deal with financial worries by overeating. This, of course, leads to unintended and unwanted pounds. On the flip side, others simply can't eat or hold food in because they are so anxious. They become frail and weak to the point of sickness.
5. Headaches. When all you're thinking about is a way out of your financial mess, that focus can tax the brain pretty severely. Hence, throbbing gray matter -- or even migraines.
6. Skin eruptions. I recall a woman who was under such extreme pressure that her lower lip was in a constant state of blistering. Yes, it was painful, but it was also embarrassing. Interestingly, when she finally got her liabilities under control, the cold sores abated. I've seen money troubles result in other epidermis delights, such as acne flare-ups.
7. Substance abuse. Do financial problems cause addiction? No. But if you have a propensity to turn to drugs or alcohol in order to cope, there's a good chance you'll go down that path. Of course, leaning on any kind of substance can numb you from the reality of your circumstances, but it solves nothing -- and the physical toll it takes is often devastating.

Article found on creditcards.com

Escape the Debt Trap

"It is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money"  (N. Eldon Tanner)

     In the last 10 years credit card debt has tripled in the United States. Seventy percent of all U.S. cardholders carry a balance on their credit card averaging $3,900, and about three-fourths of them make only the minimum payment, which would be about $78 each month. At 18 percent interest, it will take them 35 years to pay their debt, and they will pay out over $10,000 in interest before they are done. (Data courtesy of Bankcard Holders of America, Salem, Virginia.)

     Debt, no matter how attractively packaged, is a huge trap for many people today. It has proved to be a significant factor in the breakup of many marriages. If couples don’t use their resources wisely, overspending will eventually rob them of their money, time, health, family security, and peace of mind.

     Budgeting is a plan that helps people make the best use of their income and savings. Before beginning the budgeting process, it is important to distinguish between wants and needs. Realistic, workable budgets result when couples agree to provide carefully for their needs and to exercise self-discipline and patience as they seek to provide for some of their wants. Begin budgeting by listing all expenditures from several previous months. Determine where the money went and which expenditures were unnecessary and which were necessary.

     Once the stranglehold of excessive debt is loosened and eliminated, family members’ outlook on life brightens, homes become more harmonious, more children are taught by example the vital principles of provident living, and families are freed from financial bondage and thus more able to focus on truly important concerns.

Full article found on lds.org

Credit Card Debt: How to Get Out

By: Jason (frugal dad)

If you find yourself deep in credit card debt, consider the following tips for getting out of debt, and staying out.

• Transfer balances to a low interest credit card. The lower your average interest rate on remaining credit card debt, the more of a dent each payment makes in that remaining balance. Consider this 18 month promotional balance transfer offer from Discover® More Card.

• Stop charging. This one seems so obvious I almost didn’t include it. Unfortunately, it is the one people usually fail to do with any conviction. The first step out of any hole is to stop digging. Debt management is no exception. Only then can you begin to devise a plan to crawl out. This step may require you chopping up your credit cards with a pair of scissors (keep one for emergencies), or at a minimum taking them out of your wallet and leaving them in a sock drawer at home. Whatever you have to do, stop making new charges.

• Pay debts off smallest to largest. Make minimum payments on all but the smallest one, and throw everything you can at the smallest one. The psychological advantage of scoring one or two quick wins bringing balances down to zero is worth the difference in interest charges. This is the snowball method of debt repayment made popular by Dave Ramsey in The Total Money Makeover, but many argue against the mathematics behind it. Like Ramsey says, “If you were good at math you wouldn’t have credit card debt!”

• Divide credit card minimum payments in half and pay that amount twice a month. Interest is calculated based on the average daily balance of your account for the entire month. By making a payment every couple weeks you are reducing that average balance and therefore reducing the finance charges assessed, as opposed to waiting until the end of the month to make a single payment. As an added benefit, splitting your payment into two separate payments helps smooth out the monthly budget as you will not have to come up with an entire payment once during the month, rather half that amount twice during the month (aim for around the time you receive your paycheck).

• Make micro payments (commonly referred to as snowflakes) any time you receive extra money. Send proceeds from eBay sales, garage sales, and any earnings from overtime or part time work directly to your credit card as soon as they are received. It may not seem like much, but it adds up. Besides, if you deposit the money in your primary checking account you are more likely to spend it than to use it later in the month towards repaying outstanding debt.

• Find part-time work. Sometimes this is the only option to generate cash flow over and above your normal monthly earnings. I offer this as a last resort, especially for families, because it often requires a parent being away from their family for long periods of time each day. Working a full-time job and then leaving for your part-time job makes for a long day. However, it also gives you more snow for that snowball, helping you become debt free even faster! Many times you can earn more than minimum wage retail jobs by doing something on your own. In the past I have mowed lawns, submitted articles to paying article directories, and volunteered for overtime to come up with extra debt snowball payments.

• Close out your newest accounts. As balances are paid off, close out all but your oldest one or two credit cards (I hung on to only my oldest card). One of the components of FICO score calculations is length of credit history, which is negatively affected each time you open a new account. By closing these newer cards you are effectively making the average age of your credit history older. If you aren’t sure about how old your accounts are, I suggest ordering a copy of your credit report at MyFICO.com). If you are not confident in your ability to manage credit cards going forward, consider cutting up all of your cards and living on a cash basis, but only after you have a fully-funded emergency fund in place of at least five or six months of expenses.

By following the above tips you should be able to make progress towards debt freedom, however there is one key ingredient missing from the list. Anger. You have to get mad about being in debt to get out of it. You have to make it a priority. You have to be willing to sacrifice all other financial goals for a period of time to put every extra penny you can scrape together towards getting out of debt.

Article found on http://www.frugaldad.com/

Credit Card Debt: 7 Step Action Plan

Are credits cards good or bad for you? For many people, it’s both. When times are tough it’s very comforting to be able to use your credit card to buy the things you need. However, that same convenience of use can quickly become a problem. Credit card interest rates are quite high, which makes it very difficult to pay off. So what can you do to pay off your credit card debt?

How to Pay Off Your Credit Card Debt: Goals

There’s only one way to get out of debt – live within your means. Of course, this is easier said than done because it’s hard to stop yourself from buying the things that you want. Credit cards make it easy to indulge yourself with luxuries but these debts can quickly snowball.  If you are not able to regularly pay your credit card bills, this can spoil your credit rating. So before that happens, think about the tips and advice given in this simple plan for getting out of debt.

How to Pay Off Your Credit Card Debt: 7 Step Action Plan

7. Stop buying expensive items you can’t afford.
If you are now in a place where debt is a problem then cutting down on luxuries is a must. Focus on the things you really need. The extra money that you would have spent on frivolous things can be used to pay off your credit card bills.

6. Swap expensive hobbies for lower-priced ones.
Having a hobby is generally a good thing but if it costs so much that you have a hard time paying your bills, you can just swap it for a less expensive hobby.  For example, do you love to do scrapbooking? You can still pursue your interests; just stop using the costliest paper and decorations for your hobby. Recycle stuff instead, it’s good for the environment and your bank account.  To give another example, if you want to exercise to lose weight, don’t go for a gym membership that costs a lot of money. Take up jogging, it’s free and burns a lot of calories.

5. Get a notebook and write down all your purchases.
The little things add up. Sometimes you may not notice that you actually spend a lot of money on everyday items like soda and juice. If you keep a daily dairy you can spot many different ways to save money on small things.


4. Get a debit card.
Obviously, no one nowadays wants to carry a lot of cash around. Since you need some plastic, get a debit card so you won’t have to use your credit card when your cash on hand is not enough for whatever you need to buy.  This is also a good way to keep track of your spending. If you really want to be strict about your budget you can transfer a set amount to your debit card each week. Having no extra money on hand can help you stick to your financial plan.

3. Don’t use your credit card.
This one is quite tough to do when you are struggling to pay the bills because it’s so tempting to just use your credit card and worry about the bills later.  Unfortunately, it’s simply not that easy. Credit card interest rates are quite high so paying the bills with credit cards when you don’t have enough money is like putting fuel on the fire. You will just get deeper into debt.  When you get your debit card, leave your credit card at home. It’s still there in case you need money for an emergency but not having it on hand makes it easier to resist using your credit card.

2. Look for cheaper services.
Bills like electricity, gas, water, phone, cable TV, internet, etc. are so hard to pay each month when you have a lot of debt to pay off. Try switching to a cheaper utilities company or service provider; there are many companies out there that may offer a better service for less money.

1. Sit down and plan your budget.
The top tip is to just sit down, find out where you are in terms of your family or personal finances and create a monthly budget.  Get all of your financial records – your daily spending diary, checkbook, credit card bill, utilities bills, etc.  Separate the essential expenses, like mortgage and utilities, from the inessential ones like restaurant bills and movie tickets.  Total up each list separately. This will tell you how much you really need to spend and what you can cut back on.
How to Pay Off Your Credit Card Debt: Summary and Conclusion
Hopefully this 7 Step Debt Action plan has given you some good ideas.  It’s not easy to cut down on daily and monthly expenses but it can be done. In the end, paying off your debts and becoming financially healthy boils down to just two simple things: keeping track of your expenses and taking control of your spending.

http://www.debtplan.org/

Credit Card: Fantastic Plastic?

BY ELYSSA RENEE ANDRUS

Tempted by all those credit card offers? Here’s what you need to know.

Steve was working on a term paper when a credit card company called his Brigham Young University dorm. The company was offering cards to students and wondered if he would like to apply. Happy to take a break from studying, Steve agreed to answer a few questions. He told the representative he was on scholarship and had no income. Since he planned to serve a mission at the end of the year, it would be a long time before he graduated and began a career. I’ll never get approved, Steve thought as the conversation ended. To his amazement, he received a $2,000-limit credit card a week later in the mail.


Teens and college students like Steve are an attractive market for credit card companies, according to Catherine Williams, president of a nonprofit organization that offers credit card counseling. If you are nearing your 18th birthday, you may have already received an enticing credit card offer or two in the mail. Some companies offer discount airfares, while others give away free T-shirts for filling out an application. Whatever the incentive, credit card companies aggressively seek youth because they want to establish brand loyalty early.

What is credit, anyway?
Since you have to be 18 to qualify for most credit cards, what does this have to do with you? Elder Marvin J. Ashton (1915–94) said, “Proper money management and living within one’s means are essential in today’s world if we are to live abundantly and happily” (Liahona, Apr. 2000, 44) If you have a job, you may have already been able to budget and establish wise habits like paying tithing and saving money. When you turn 18 or leave for school, owning a credit card might seem like the logical next step in your financial education. But you need to know the basics first. “Before you decide to get a credit card, you need to know the facts. You need to know what’s out there,” says David Ogden, chairman of an Internet company that offers advice to students about credit cards.

First of all, he says, it’s important to understand how credit works. Acredit card is basically a monthly loan, usually with a grace period to pay back the money borrowed. Each card has a limit, or maximum amount of money you can spend with that card. With most companies, you have until a certain date each month to repay your purchases before they start accruing interest.

Let’s say you purchase $80 worth of books one month and pay off the full balance early. You owe the credit card company nothing. Sound like a good deal? In many ways, it is.

Avoiding debt’s pitfalls
The problem with credit cards arises when you can’t pay your entire monthly bill. Credit card companies make money by allowing people to make minimum payments and charging interest on the rest. For example, instead of paying off your entire $80 bill, let’s say you make the minimum payment of $20. From the due date forward, you must pay interest on the remaining $60. This can add up quickly. Having a debt on your credit cardis like agreeing to give someone a bigger and bigger portion of your paycheck each month. The amount you owe the credit card company will increase until you pay off your full balance.

Credit card debt can get out of control, causing heartache and deep financial troubles if unchecked. President Gordon B. Hinckley has said, “Debt can be a terrible thing. It is so easy to incur and so difficult to repay. Borrowed money is had only at a price, and that price can be burdensome” (Ensign, Mar. 1990, 4). Steve learned this lesson the hard way. For the first few months he had his credit card, it stayed in his wallet. But in the last three weeks of his freshman year, Steve went on a spending spree. “After a year of living on a few hundred dollars a month, I decided to go have some fun,” says Steve.

With his credit card he paid for weekend trips and new clothes. By the time he went home, he had racked up charges nearing his credit limit. As a result, he spent the summer before his mission working frantically to pay off the debt. “It wasn’t a positive learning experience,” says Steve. “At the time, I didn’t realize that a credit card doesn’t expand your income now; it shrinks your future income because of debt.”

Wise credit card use
Owning a credit card doesn’t automatically put you in a situation like Steve’s. A credit card is just a form of payment and, if used responsibly, can be a helpful tool. Having a credit card and paying your bills on time establishes good credit, which will be handy in the future if you need a loan to purchase a car or home. Credit cards also allow you to make big purchases, like all your books for the semester, without carrying around large amounts of cash.

The trick to using a credit card is to realize it’s not free money. “A credit card is not an extension of your income,” says credit counselor Catherine Williams. She says youth with credit cards need to establish a monthly budget and decide what part of that budget can be used for credit cardpurchases. To stay out of trouble, Williams recommends starting with one low-limit credit card with no annual fees. And she says paying off the balance each month is an absolute must.

Bekah Swiss, a 19-year-old from Sandy, Utah, applied for a credit cardspecifically to build a good credit rating. To make sure she stays out of trouble, Bekah and her parents have set some guidelines. She says she will never make a credit card purchase unless she has the money in the bank to pay it off immediately. That way, she won’t pay a cent in interest. “The money some people are paying in interest could have been put in a savings account. Then it would earn them interest,” says Bekah.

Credit cards aren’t for everyone. Melinda Blunt from Tucson, Arizona, decided to leave for college without one. “I don’t feel the need for a credit card because the things that I need I can pay for up front with a debit card. That way, I don’t have to worry about debt,” she says. Melinda hasn’t ruled out getting a credit card in the future. She says she may get one to establish good credit.

Understanding credit and establishing good financial skills will set you on the right path. Becoming financially savvy means learning to live within your means and to save a little, as well. Elder James E. Faust has said, “It is important to learn to distinguish between wants and needs. It takes self-discipline to avoid the ‘buy now, pay later’ philosophy and to adopt the ‘save now and buy later’ practice” (Ensign, May 1986, 20). A credit card is a convenient way to pay for things, but it won’t bring you more money or pad your savings account. If you expect it to, you’d better wait and store those offers for cards with free T-shirts and discount airline fares in a safe place: the garbage.

Credit Card Savvy
•
With your parents, shop around for a credit card with a low interest rate and no yearly fees. Credit card companies that aggressively solicit students often have high interest rates. The bank where you have your checking account is often a good place to find a card with a lower rate.

•
You can make payments on your credit card anytime, including before you receive a bill. Paying off your credit card early helps reduce the risk of missing a payment.

• Pay the monthly balance in full, period.

• Avoid getting cash advances on your credit card. These have no grace period and have an average Annual Percentage Rate of 19.56 percent, according to a 2000 Internet survey.

• Keep all of your credit card information in a safe place. If you are moving for the summer, make sure the credit card company knows the address to which the bill should be sent.

Credit Card Safety
• Sign the back of your credit card as soon as you receive it.

• Never let anyone borrow your credit card.

• If your credit card is lost or stolen, report it immediately. You are only responsible for $50 of unauthorized purchases, and you are not responsible for any unauthorized purchases if you report the card missing before they are made.

• Go over your monthly bill carefully to make sure all the charges are correct.

• If you need to contest a billing, call the company’s customer service number.

• If you decide to discontinue using the credit card, simply cutting it up isn’t enough. You must call the company and cancel your account as well.

[illustrations] Illustrated by Scott Greer

Debt Load
by Lisa M. G. Crockett

Rationalizing their way into debt was easy. Getting out was tougher.

Melissa got her first credit card when she went away to college. Her parents, who helped her apply for the card, told her it was for emergency use only. At first, Melissa followed that advice closely, usually consulting her parents before she made any purchases on the card.

“At first, I didn’t use my card all that much,” she says. “The problem was, my parents didn’t really explain how credit worked. In fact, I saw my mom use her credit card all the time to buy things at the store. She never thought to tell me that she only bought things she knew she could pay for in full every month when the bill came.”

Married while she was still in college, Melissa and her husband soon longed for the comfortable lifestyle they had enjoyed at home with their parents.

“We felt that we deserved most of the things we purchased with our credit card. We never stopped to consider if we could afford it.”

Soon Melissa and her husband were charging necessities like groceries and gas for the car on credit cards because all their available cash was used up paying the minimum balance on several credit cards. Finally things were so bad that Melissa sought help from her parents.

“It was really embarrassing to have to go to my dad and tell him what we had done. We were really lucky that my dad was in a position to help us.”

But even with help and new knowledge about how credit works, it hasn’t been an easy road, says Melissa. In addition to having to check in with her dad for several months after he bailed them out, paying the loan back to her father has meant several years of a very restrictive budget. But Melissa says the sacrifice has been worth it.

“I felt like I was in prison before. Now, even though I don’t have as much money to spend, I feel a real sense of freedom. Getting out of debt is worth whatever it takes.”

Article found at lds.org