Sunday, February 3, 2008
Today's economy has put a major squeeze on the wallets of the middle class. Stagnant wages and rising prices have placed millions of Americans in a position of having very little disposable income. Monthly bills gobble up earnings and very little is left for non-essentials, like dining and entertainment. Unforeseeable expenditures, such as the breakdown of an automobile or household appliance, leave consumers with no choice but to employ the use of their credit cards to cover the cost. As a result, credit card debt adds up quickly, saddling the consumer with finance charges that further diminish the financial situations of many.
Once a person becomes burdened with high debt, there is no easy way to reduce or even eliminate the liability, but there are things a person can do to manage credit card debt and put themselves on a path towards eliminating it altogether.
Make Minimum Payments on Time
- Paying minimum monthly payments on time is critical to maintaining a good credit rating. Sustaining a superior rating is vital to managing credit card debt. High-quality credit ratings allow the consumer a wider choice of options, which translates to lower APR's and faster diminishing of overall debt. With the deregulation of the financial industry in recent years, credit card companies have been afforded the option of assessing high fees and exorbitantly high interest rates, with little recourse for the consumer. Maintaining a good credit rating only gives consumers clout in any negotiations with banks, as these are the customers they desire.
Consolidate Credit Card Debt to Lower Interest Accounts
- Lower interest rates mean smaller finance charges. The intent is consolidating your credit card balances to the lowest possible APR available in order to pay down those balances.
- Credit consolidation offers generally come in two forms:
o A balance transfer offer from an existing credit card company, with which the consumer already does business, or
o Offers/invites to apply for a new account
- In reviewing balance transfer offers, it is critical to read the fine print and the disclosures carefully. Balance transfer offers usually come with a fee of 3-5% of the amount transferred. In addition, most offers stipulate that future payments are applied primarily to these transferred balances, further cementing the debt that's already carried at the previous, higher APR. Taking these two factors into consideration, only you should be able to determine whether or not these conditions will help or hinder your goal of reducing your finance charges and therefore your overall debt.
- Another important consideration in analyzing consolidation offers is the length of time offered at the lower rate. Many agreements offer a choice of either a super low rate (sometimes even 0%) for a limited time or a slightly higher one that will be in effect until the balance is paid off. The lower, limited rate can be tempting, but should only be chosen if it will help remedy the specific financial situation of the borrower in the long run. Oftentimes, the low rate offer for the longer period is more beneficial.
Seek Professional Advice
- One benefit to arise out of the debt crisis has been the advent of debt counseling services. The notion of debt counseling, as opposed to debt consolidation, is providing people to manage their debt without ascertaining new debt. Quality debt advisement businesses offer a wide range of services to help consumers manage their debt. Such services include, but are not limited to:
o Offering budgeting advice to consumers who have difficulty managing their expenditures.
o Negotiating with credit card companies on their behalf, to help alleviate the burden of high payments as well as finance charges, in some cases. In most cases, multiple monthly payments can be consolidated into one, more manageable sum.
o Professional analysis of one's overall financial situation to determine the best options for you.
- As with any other business service in the market, many predatory businesses exist within this booming industry. They offer promises to those in need, preying on those who could least afford to be victimized by such actions. It is vital to perform some thorough research in finding a valid credit counseling service. Determining the legitimacy of any debt counseling company will only serve to benefit you in your search for some valid help. The National Foundation for Credit Counseling (http://www.nfcc.org/) is a nonprofit agency that provides links to all sorts of services related to credit counseling.
Cut Back on Spending and Cut into Your Debt with a Small Daily Expenditure that You Can Afford
- Have you ever heard the quote, "Pay yourself first?" A couple of years ago, renowned financial adviser Suzy Ormon was on the Oprah Winfrey show giving tips on financial health. During the show, she suggested taking a small sum of money that you might spend needlessly on a daily basis, such as for lunch or coffee and putting it into a savings account. Ten dollars was her recommended amount. With this measure, a person would save $3650 in just one year without putting too much of a strain on their wallet. For people heavily in debt, this is surely a beneficial way to chip away at that large stone of debt, whether it's ten dollars daily or even five.
Clearly, credit card debt is a major issue in the lives of millions of Americans. There is no magic pill for eliminating it all at once, but there are several options to help you effectively manage that credit card debt and make your way towards financial freedom. Above all, it is important to take a step back and explore all options thoroughly and decide on a plan that's best for you.