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Credit card debt: In too deep? |
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Written by Erin Frustaci
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Thursday, 05 April 2007 |
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 It’s 3 a.m. and you’re wide awake in bed when it strikes. The inner panic of buyer’s remorse creeps up like monsters from under the bed.
Yet unlike the Boogie Man, credit card nightmares are real. You frantically wonder how you will pay that bill. Maybe it isn’t too late to return that big screen TV or Louis Vuitton handbag.
It’s easy to spend money you don’t have. And with roughly 1.2 billion credit cards in the United States, you aren’t the only one having a sleepless night. The good news, though, is there are better remedies than Ambien for your credit-card debt horrors.
Sara Allen, 51, of Loveland is the executive director of Consumer Credit Counseling Services, a nonprofit agency in Fort Collins that helps individuals and families prevent and resolve financial problems and learn money management skills.
“We do need credit cards in our society,” Allen said. “We are organized around them... There are plenty of reasons to use them, but you have to have structure. The bad thing is the temptation to overspend.”
Allen and other experts offer the following tips on how to avoid massive credit card debt and how to dig yourself out of the hole.
READ THE FINE PRINT
 Heather Green, 30, of Fort Collins spends her days helping people deal with credit card debt and other financial problems. Green is the director of counseling at Consumer Credit Counseling Services.
Step No. 1 before signing up is to read the terms and conditions of that latest credit-card offering in your stack of junk mail.
Green said it is vital to look at the interest rate. Many cards have low interest rates for the first few months, but those will balloon after the introductory period. It’s also important to know the late-fee policy and the annual fee.
Allen said some of the cards that allow people to earn benefits are not always as great as they seem.
“Some charge a significant annual fee,” Allen said. “You have to pay attention to the perks. They may or may not make sense for you.”
Allen also recommends looking for a card with a 25-30 day billing cycle so the deadlines do not skip around or sneak up each month.
KNOW YOUR LIMIT
 Know how many cards you have, how many you will use and how much you will let yourself spend.
Just because you have a credit line doesn’t mean you have to use it. Credit counselors used to recommend closing cards that aren’t used, but that is not always a great idea. Closing credit lines can sometimes negatively affect a person’s credit.
“Now, if you have 20 credit lines, for the sake of if someone breaks into the house or steals your purse, you probably don’t want that many,” Allen said. “If you have five or six or seven, you may want to leave them alone.”
To avoid the temptation of using credit cards, many people will store the cards in safe places instead of keeping them in their wallets.
Allen also cautions clients from keeping their balance too close to the limit.
“Even if people make their payments on time, if they are consistently at the top of their credit line, it could negatively impact their credit,” Allen said. “Paying down is important.”
MAKE YOUR PAYMENTS
Pay the bills — it can’t be reiterated enough.
Eric Berglund, vice president of commercial and business banking with First Community Bank, said the first thing to do is make sure to make payments on time.
“A lot of people will forget or let it slip,” he said. “Late payments will hurt your credit score.”
If the debt has piled up, it’s time to make a plan. Allen has clients write down a list of what is owed, the interest rates and when the payments are due. She recommends focusing on paying off the lowest balance first.
“It’s purely motivational,” Allen said. “You need to make payments on the big ones too, but pay extra on the smaller one. Once that one is paid off, the extra money goes to the bigger one.”
PLAN FOR EMERGENCIES
Life happens and costs money. Green said a lot of credit-card debt comes from the unexpected.
“A job loss, a change in income or medical problems frequently lead to credit-card debt,” Green said.
Having an emergency savings account can help avoid mountains of debt. However, Berglund pointed out that most people do not have huge cash reserves.
“It is important to have a credit card for emergency situations, when you need it,” he said.
The key word is emergency. A new spring wardrobe is not exactly emergency material.
To rebound from tough times, Berglund said the nasty “B” word is an option.
“Budgets are sometimes a good thing,” he said.
SEEK HELP
Many credit-card companies target college students and young professionals who are just getting on their feet.
“Who knows how much those tacos will cost you later in life,” Berglund said.
It seems credit cards are things everyone struggles with at some point, which is why Green said there is no need to be embarrassed.
While there are no quick fixes, several organizations can help get you on the right track. When looking for a credit counseling company, try to find one that is reputable and does not charge outrageous fees. Most banks and nonprofit credit counseling companies will offer information for free.
“It’s much easier to hurt your credit than it is to rebuild it, so knowing how to manage your finances from the beginning is helpful,” Green said. “From the first indication that there are difficulties, seek help rather than wait.”
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WEB RESOURCES
www.bankrate.com
Provides free rate information to consumers on more than 300 financial products, publishes finance stories, conducts financial research and offers expert financial advice.
www.debtadvice.org
The National Foundation for Credit Counseling is a national nonprofit network of agencies that offer financial services such as money management education, confidential budget, credit and debt counseling, mortgage delinquency counseling and homebuyer education.
www.powerpay.org
Offers money management resources like a debt calculator and spending plans.
www.aba.com
The American Bankers Association represents banks of all sizes around the country. Information and tips for consumers.
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