[widget:ad_unit-1221255277]Sometimes, the worst part about amassing a large amount of credit card debt isn’t necessarily the financial hole you’ve dug for yourself, but the hit you take in your emotions. You may feel as though you’ve been dumb, stupid, or gullible, (whatever label you choose to put on it) to fall into this trap of ever-increasing indebtedness. You feel helpless to do anything about. If you’ve done it more than once, then the feelings are multiplied. This is not all your fault, as the credit card companies themselves bear some responsibility in how this has turned out. Let’s look at some of the insidious ways you’re made to first incur the debt, and then made to feel as though you alone are responsible for this.
Maybe it was for a good reason, such as medical needs, emergency house repairs, (plumbing, etc.). Or perhaps it was for a not so good reason, such as the wonderful all-inclusive vacation to St. Thomas. The fact remains that a large amount of non-deductible debt has "somehow" grown to this ever-increasing monster, threatening to consume your financial future if allowed to. Believe me, I understand how easy it is to just whip out the plastic or to use those incredibly insidious "convenience checks", (convenient only to the company lending you the money) which allow you to deposit large sums directly into your bank accounts, or pay for a large purchase. I mean, they look like one of your checks, right? They’ve got your name on them and everything! That’s where the problems begin. It just gets easier and easier to use them. It doesn’t matter if you don’t have the income to support this rising debt.
Before you know it, you’re saddled with a large balance that may not have a large interest rate at first, but by the time you get around to paying it all back…let’s just say you really don’t want to know what it’s going to cost you in the long run.
The prevalence in today’s society to play now, pay later (much later!) is leading many Americans down a path that will be difficult to return from. If you take nothing else away from this article, know this: do yourself the biggest of favors and understand, really understand that the credit card companies are not your friends. They are out to make money, plain and simple, and they don’t care about your personal financial well-being. That said, we are definitely moving toward a cashless society, so learning how to wisely use credit, and not simply be subject to what they would have you do is more important than ever.
If you can learn to take 100% responsibility for your life and the decisions you make you’ll find that you will look to yourself for guidance, not MasterCard. A very wise person said that it’s very important to know who your friends are, and essential to know who your enemies are.
You get stacks of them in your mailbox every week. Those credit card offers promising 0% interest on balance transfers and even new purchases until some date far out in the future (usually six months to a year). You wonder if this might be a way to not only pare down some of the interest you may be paying on your other cards, but to start getting out of debt altogether; maybe. There are many things to consider and most of them revolve around you.
What happens very often in the real world when consumers take some credit card company up on these kind of offers is that they do indeed manage to realize an interest savings at first, but when push comes to shove and they’ve got more month at the end of the money again. It’s very tempting to just go and charge up the old credit line once again, and before you know it, they’re back in the same situation again.
‘Well’, you say, ‘why didn’t they just cut up or close those old accounts when they took out the new credit line?’ Well, that may have worked for their spending, but it would have also given their credit score a ding, as seasoned accounts count for more than new ones.
This puts the ball back in the consumer’s court: will they be responsible enough to go the route of keeping credit lines alive while reducing their interest, or is the temptation too great? This is a decision each has to make for themselves.
The Federal Reserve reported that consumer credit, that is, non-mortgage loans to individuals, rose some 6.4% at an annual pace, or $12.9 billion dollars on May, fueled in large degree by the housing slump as well as concerns over high energy prices. This is not a huge surprise, as when sources of available cash like home equity loans and refi-cashouts are less available, it stands to reason that consumer credit would take on some of the debt load. This may be the first year since the Depression that home prices will not post an annual gain, and it may be making some consumers less apt to spend, both because they are no longer experiencing large paper gains in their equity on their homes, as well as the fact that their personal debt loads are increasing, making it harder to stomach.
This leads to the thinking that consumer spending will slow to a rate of 2.2% in the second quarter. Most believe that the continued housing woes and energy prices will keep consumers wary of pulling out the plastic, or the loan apps, in spite of stronger than expected job gains and wage numbers. This actually may bode very well for the housing market, which is lately showing signs of life, to make a rebound in 2008. Mortgage applications are just now on the rise, and rates have held steady. It is a more than a little disconcerting, however, that Americans will continue to incur debt at this rate, no matter what instrument they find to incur it.
[widget:ad_unit-1221255277]If things have come to the point where you need to start doing something, hopefully before you start to receive threatening calls from the credit card companies or when you just see a crisis looming on the horizon, you may want to get a plan for negotiating a plan with your creditors. You may only need to lower your rates to get a handle on things, and the good news is that that is very possible.
Roughly twenty percent of credit card borrowers have negotiated at least some terms with their credit card issuers, usually the interest rates and annual fees. These are the ones you may be able to get something done on. Don’t expect too much mercy on late fees and raising your credit limits if you’re already having a problem. Annual fees are probably the easiest to get rid of, as there are many issuers that don’t charge them at all anyway. The customer service representative you talk to on the phone may have some latitude to help you with rates, but then again you may have to work your way up the ladder. Each company’s credit criteria is a little different, and there are usually no rules set in stone; each case is handled individually.
While most issuers don’t want to talk about debt negotiation, they’d really rather do some of that than have you default on the debt, which is why many now have hardship programs in place, which reduce interest and payments for a few months while you get caught up on your bills. You don’t hear much about these programs, but with a little perseverance you can ferret them out. They’ll also appreciate the fact that you came to them first, if in fact that’s what’s happening here. The collection process is costly to them, whether it be simply having to have someone call or actually engaging a collections agency down the line, so they want to avoid this at all costs.
When you call your lenders be sure and explain your situation clearly; how this came to be, how long you anticipate this problem will last, what if any financial promise you see in the near future. In other words try and paint a clear picture before you ask for what you want. When you do ask, explain what you can afford to do at this time, and ask how they can help you.
Be sure and document all your conversations with any of your lenders, as this will be helpful should anything go legal on you.
If you can’t get the lenders to agree to a reduced payment, a change in terms or anything other concession, then it may be wise to consult a credit counselor. Don’t threaten this or give them any reason to do anything adverse to your credit rating. Be polite, but firm in your desire to work this out for all concerned and you’ll eventually come out the other side!
[widget:ad_unit-1221255277]The Snowball method of debt reduction was so named by Dave Ramsey, a very savvy and popular personal finance guru, and the truth is, the Snowball Method just plain works! No matter how much debt you’re talking about, no matter what the interest rates, the Snowball Method gives you a framework for paying down all that debt you’ve accrued over the years, and providing some hope for those of us who find themselves debt-strapped. Perhaps that is the best part of the Snowball Method: the satisfaction and hope that’s suddenly a part of your life again seeing your finances headed in the right direction. There may be ways that make this happen faster, and we’ll take a look at that in a second, but the basic Snowball Method is a great place to start!
The basics are these: list all your debts in ascending order, from lowest amount to the largest. Make sure to pay the minimum payment on all of these, except the smallest debt. To this one we apply any and all available funds, (which had better be more than the minimum payment, or we have something else to talk about) and knock this particular debt down to size fairly quickly. Once that debt is retired, you start on the next biggest obligation, and work your way up the ladder. The important thing is that once the first debt is gone, you take the money you were applying to the first one, and add it to the minimum you were paying on the next highest debt. This is really the only way it works. You have to be disciplined to "snowball" your payments this way, until all the debt you want to go disappears.
The basic advantage of this method, besides the obvious benefit of paying down the debts systematically, is an undeniable psychological aspect to seeing these debts dispatched one by one. You feel better about yourself, your self-esteem gets a shot in the arm. If you are feeling better, you’re a whole lot less likely to make poor, emotionally based financial decisions. ("I’ll just put this on the credit card, I deserve it.")
One drawback to the Snowball Method is that it doesn’t really take interest rates into account, and by using this method, you will pay more in interest over the life of your loans. This is because two debts; one of $1,000 and one of $10,000 may share the same interest rate, but by paying of the smaller one first, the larger one keeps accruing larger amounts of interest. You can switch up the order of the debts you repay first, by highest interest rates, but this has proven harder for some people to accomplish. The time it takes to retire a larger debt is often too much strain for some people, and they are better off paying more money in the long run.
The Snowball Method has its advantages. It can play a vital role in a sensible debt reduction strategy.
