I’m Drowning in Debt! How Did This Happen?
According to those money wizards at www.fool.com, Americans carry an average of $8,562 in credit card debt, and paid a collective total of about $50 billion in finance charges in 2001. Many people blame credit card companies, who “reel us in” with “credit cards tricks” that qualify us even with bankruptcies and liens haunting our credit reports. You get that attractive invitation to apply for a credit card with your choice of leopard print or celebrity art, and then next thing you know you have an easy $250 limit. Next you run out and charge $100 in groceries on your fancy new Platinum card, thinking you are well below your limit and in good shape. You then start to make plans for that remaining balance of $150 – until you get your bill for $310.
What you forgot to do was read the back of that form you signed. The company will be charging you $60 as a one time application fee, $75 as your “program” fee, and $45 as your annual fee (which you will have to pay every year). That’s $180. Then, you charged $100 to your card, putting you $30 over your credit limit, which comes with a $30 fee. Now you owe at least $60 to bring your balance back to your limit, and that’s not including your interest rate, which, by the way, is only good for 6 months.
Are credit card companies to blame? They cannot legally defraud us, but they do rely on the fact that most of us are so eager to get what we want now instead of later, we will not take the time to read the fine print. We use our cards to buy things we should be paying cash for, and only pay the minimum payments on our bills. These bad habits guarantee we will be in debt for a very long time, for things we’ve probably forgotten that we own! Are the credit card companies to blame for America’s startling amount of consumer debt? Maybe. You could say that the problem is that credit is too easy to get. Many financial gurus say exactly that. The bottom line, however, is that most of us don’t do our homework, and don’t manage our credit well when we get it.
Of course, there are legitimate reasons some of us are struggling with debt management. Disability, unemployment, and medical emergencies sometimes eat our savings, and then our credit is our only hope to pay the electric bill and eat something other than Top Ramen. When misfortune strikes, many people are left with more expenses than income, and it does not take long for the situation to get out of hand.
Credit Card Debt Can Work For You
Doing without credit cards is not necessarily the answer. Bad credit can keep you from renting most apartments, getting some jobs, and buying a new home. Credit cards are a fast and easy way to re-establish good credit and prove that you can make regular, on-time monthly payments – that you can be trusted with more credit. You can learn to manage your credit card debt in such a way that it does not eat up your monthly income and gives you a shiny rating on your credit report.
First, wisely manage the credit you already have. Use it for things like gas and food that you can pay off in full when your bill comes. If you cannot pay off your credit cards in full each month, pay more than the minimum. The minimum payment mostly covers the interest that goes to the company – the next month, your balance will have barely budged. Also, keep track of your limit and don’t make late payments. You’ll be charged hefty fees, and payments over 30 days late will be put on your credit report as a negative mark.
Second, put a reign on excessive debt. If you have several debts to which you must pay interest, follow the “high-interest first rule”. Pay as much as you can each month on your debt with the highest interest rate. Pay the minimum on the rest of your debts until that high interest debt is gone. Then, take the money you were spending on that debt and pay it on the debt with the next highest interest rate. You can cut years off the amount of time it will take you to get out of debt by following this pattern.
Finally, get professional help if you need it. There are many good, legitimate companies prepared to help you work out a plan to keep your finances in order, and help you repair the damage when credit card debt becomes overwhelming. Educating yourself is the best way to prepare to get the things you want with good credit instead of losing out with bad credit.
Following these three steps will you help reach a greater level of financial freedom, and help you make peace with your debt.
By Alisa K. Terry