Credit
Card Debt is
Spiraling Out of Control
For the average
American family, debt, and especially credit card debt is spiraling
out of control at a record pace. The average household credit
card debt has risen dramatically from $3000 in 1990 to over $8000
today. Personal bankruptcies are also at an all time high, prompting
Congress to consider a radical bankruptcy law overhaul, designed
to weed out those who are merely taking advantage of the system
loopholes while directing many to more palliative debt elimination
alternatives such as a debt
management program.
Of course
some debts are considered necessary and indeed wise choices. For
instance, few if any could afford a house if we had to wait until
we could buy it outright. Generally speaking, a home is an asset
that, over time, appreciates in value. Another debt that “makes
sense” is a student loan. All data points to a direct correlation
between income and educational level. However, what about that
big screen TV you really didn’t need, or that new car when
a used one would have served the same purpose and not have created
a financial nightmare. We need to start telling ourselves NO!
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According
to the experts at The Credit
Counseling Foundation, Inc. (www.GoDebtFree.com),
statistics show that about 60% of all credit card holders do not
pay off their entire balance each month. With average interest
rates still hovering around 15%, this increases the cost of everything
you buy by at least 15%. And if you are only making the minimum
payment, you could be looking at 20-30 years to pay off that balance
depending on your interest rate. Minimum payments are designed
to cover mostly interest, thereby keeping the holder chained to
their credit card debt. One may ask with interest rates at 30
year lows why are credit card interest rates still so high? Simply
put, there are no regulations on credit card interest rates requiring
that they mirror prevailing interest rate indexes. Along with
late fees, user fees and penalties, these interest rates, which
can be greatly increased due to just one single late payment,
are all implemented to generate tremendous revenues for the issuers,
while at the same time creating a situation of unwanted indentured
servitude for the debtor.
When faced
with this overwhelming problem, what is one to do? Well the first
line of attack in your debt elimination is to cut up all credit
cards. Only buy what you can afford to pay for in full. If you
decide to keep a credit card, pay it off every month. This may
sound like basic, common sense advice, but what about the average
Joe who has already accumulated too much debt and cannot pay it
off? If you are extremely disciplined and have the extra cash,
you may want to formulate a plan to pay off the higher interest
cards first. For most us who neither have the cash flow nor the
self-discipline to adhere to such a plan, or don’t want
to lose the built up equity in our home by taking out a line of
credit or re-financing which, by the way, could put the family
home at risk should future financial setbacks occur, a good alternative
would be to use a non-profit 501 (C) (3) credit
counseling service. These companies can afford their clients
many benefits that they could not ordinarily accomplish on their
own. Interest rates can be reduced, accounts can be brought back
to current status through re-aging, and maybe best of all, can
stop those annoying and embarrassing creditor calls. It can get
you a workable monthly payment while shortening the payoff term
to typically 4-6 years. This can save thousands in interest costs!
Another overlooked benefit is that all credit cards put into a
debt management program are closed, thus eliminating all temptation
no matter how hard you find it to say NO! All this without the
trauma and stigma caused by bankruptcy.
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Since there
are literally thousands of these debt
management companies out there, how does one go about choosing
the right one? In addition to using a non-profit agency, check
factors like the company’s Better
Business Bureau report, are they accredited by a nationally
recognized certifying agency such as ISO or COA, are their counselors
certified as well, how long have they been in business and word
of mouth recommendations. Another consideration is whether to
use one of the local community funded agencies or a private one.
Although the local agencies have the advantage of being able to
meet you face to face, due to limited budgets they can lack the
expertise of private companies as they are often staffed predominately
by volunteers and don’t offer the array of modern on-line
and technological services which today’s consumers deserve
and most large creditors demand in order to extend the debtor
their most favorable terms. Moreover, many locals encumber their
clients with restrictive guidelines, going as far as limiting
the number of haircuts you can get or movies you can view.
If you have
reached the point where you are transferring balances just to
keep afloat, making minimum payments and getting nowhere or getting
harassed by creditors and view bankruptcy as both far too damaging
and morally unacceptable, you may want to consider contacting
a reputable credit counseling/debt
management organization. A good starting place besides the
BBB, would be one of the debt management organizations that belong
to the American Association of Debt Management Organizations (AADMO).
Most of all, don’t despair! Help is out there, just do your
homework and choose wisely. With the right agency to guide you
combined with a true commitment to getting out of debt once and
for all, there is indeed light at the end of the tunnel.
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