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June 3, 2004
Credit Card
Blues
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 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!
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 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 or
settlement.
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 or
settlements with your creditors 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.
Article written by Neil Goldberg
The Credit Counseling Foundation
Phone: 800-790-3882
Email: ngoldberg@godebtfree.com
Web: www.GoDebtFree.com
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