How to keep the stress of monthly credit card debt payments at bay

Rising costs of living and topsy-turvy global economy have made millions of Americans to put daily essential expenses and even outstanding debt repayments including mortgage and credit card debt on hold. However, this can’t be a stable solution to one’s financial problems. In fact, this may result in enduring delinquent debts which are likely to grow with pre-set interests over time. Paying a lump sum can just make a dent in the debts; so it’s better to pay off the debts systematically. If you’re in knee-deep credit card debt, you must bring some changes in your behavior and also change your perspective towards paying off the debt.

Strategies to pay off credit card debt

In order to pay off outstanding credit card debt with less effort, you should maintain a system and follow some strategies. Here are the strategies that you can follow to get rid of credit card debt without stressing yourself.

Create a strict budget – Owing debts is like putting calories. If you put more calories than what you need, it will result in over-weight or obesity. Similarly if you owe more debts than what you can afford, it will result in delinquent debts. So don’t spend more money than what you make, otherwise it will enhance your debt burden. Debt is insidious; the worst thing about owing a debt is that it keeps growing. Even after getting the numbers in balance, you will find that the outstanding debt amount is still much more than what you actually owed. To avoid such a situation, you should shed your debt. Spending judiciously is the only way to shed outstanding credit card debt as well as other debts. You must adopt the tricks of being frugal. Create a strict budget and follow it religiously. Don’t spend for anything which is not necessary for you right now. You need to avoid being extravagant. On the other hand, you can also shed existing debts by earning more, but this is not always possible. However, if you can do it, spend the additional dollars you earn for paying off the debts.

Use cash or debit card – Instead of using credit card, start using a debit card in order to cut down credit card debt balance. It would also help you to prevent accruing more debt along with more interests on your credit card. If you keep using your credit card whenever you go for shopping you may not be able to reduce the debt balance. Moreover, you will be deeper down in debts. Therefore, you must try to use hard cash or a debit card while shopping.

Renegotiate with your creditor – If you fail to reduce your debt balance even after following strict budget and using credit card judiciously, you can contact with your credit card provider. Ask them politely to offer you a new deal with lower interest rate on outstanding balance. If you’re an old and loyal customer of the company with good repayment history, they may consider your proposal. Credit card companies know that if they don’t provide their customers with better deals, the customers may switch to another company for better deal and transfer the balance to the new credit card issued by the new company.

File for bankruptcy – If you still owe huge amount of debt even after trying all potential debt-reducing strategies, as the last haven, file for bankruptcy. Filing for bankruptcy is a lengthy and difficult process. Moreover, it will reveal your financial situation. So if you have no problem with that, then you can file for bankruptcy. However, you must talk to an experienced bankruptcy attorney before making any final decision.

Credit card debts can literally ruin a person’s financial life. The sooner you get yourself out of this debt-web, the better.

Why People Who Pay on Time Pay for Credit Card Defaults

In defense of the credit card companies, one of the reasons that they charge such high interest rates is because of the number of people who fail to pay what they owe on their credit cards. Sure they are profit driven but hey, this is a capitalist society isn’t?

But the fact of the matter is that those people that carry balances from month to month are charged higher interest rates because so many others default on their credit cards. Which in effect, places the responsibility of paying for those who default on those who pay.

An appropriate analogy would be automobile insurance. The insurance companies charge higher rates in part to make up for the billions and billions of dollars in damage caused by uninsured motorists.

The common denominator here being that the responsible are forced to pay for the irresponsible. Now I realize that it is not a very popular position to side with credit card companies and insurance companies but the facts are the facts regardless.

Right now American consumers owe nearly $1 trillion in credit card debt. Approximately 50% of credit card account holders that carry balances from month to month make only the minimum payment. That shows you what a rather tenuous financial position so many Americans find themselves in.

While these accounts are extremely profitable for the credit card issuers, anytime there is a default (which is defined as a failure to make payment after 60 days) the credit card companies are out that money.

And of course, because they are a business that must stay solvent and profitable they pass those costs on to the consumer.  These defaults or write-offs are now happening at a record pace due to the high unemployment rate.

Individual bankruptcies for example, are up 36% for the first half of 2009 as compared to the first half of 2008. That is a stunning increase and has resulted in banks and credit card companies severely tightening their credit standards. Right now in order to be approved for a credit card you pretty much have to have a stellar credit rating.

Bank of America reported that their default rate rose to 13.8% in June of 2009. That is up from 12.5% in the prior month. Bank of America has been hit the worst as far as credit card defaults go because they were the most aggressive and issuing credit cards to quite frankly, people that never should have got them to begin with.

The other major credit card issuers including Chase, Citigroup, American Express, Discover and Capital One all report credit card defaults around the 10% mark. On the positive side there are signs that the economy is improving, but until we see the unemployment numbers go down the defaults will continue.


What to Expect If Credit Card Payments Are Missed

With so many American consumers struggling to pay their credit card bills a question that we often come across is, what exactly does happen when credit card payments are missed?

Well, as you can imagine there are no ticker-tape parades or anything like that, and while the credit card company can’t have an individual that owes them tossed out of their house, there most certainly are consequences.

Basically what it does is it triggers the bill collection process… and nobody wants to go through that. Let’s break it down to see exactly what happens when credit card holders stop paying their bills.

The first thing that will happen is that the individual will start to receive overdue notices in the mail from the credit card company. If after a while those letters are ignored and payments are still not made the phone calls will begin.

The phone calls will vary between pleasant and helpful sounding to absolutely rude, crude and vulgar. The callers are the bill collection agencies and while there are rules that govern how they conduct themselves they do not always adhere to them.

They get paid by how much money they can get from people that have stopped paying their bills so they do just about anything in their power to extract payment including, in some cases, lies and intimidation.

The bill collectors will call repeatedly and not just at the individual’s home but they will call their place of employment and relatives homes as well in an attempt to embarrass them.

While this is happening the credit card issuer will be making their report to the three credit bureaus which will severely impact the credit record of the person that has stopped making payments.

The interest rates charged will be raised to the maximum amount allowed by law and late fees will be incurred. What most people do not know is that interest can also be charged on late fees too. And when a person goes over the limit on their credit card, penalty fees will be incurred for that as well.

While their are no more debtors prisons per se, legal action can be taken against the person who owes the money. While they can’t be tossed into jail, or have their home taken away, the debtor can have their wages garnished and liens placed on their property.

In short, it’s a lousy way to live and should be avoided at all costs.

Visa Chairman Speaks Out On Credit Card Reform

Visa Inc recently made a statement about the state of their business, and the credit card industry as a whole, going forward in light of the new credit card reform legislation that was recently signed into law.

Visa’s Chairman Joseph Saunders stated that the industry is going to have to take a good long look at itself and rethink the way it does business. He further opined that a result of the credit card reform act will be less credit being issued to less people. Most especially those with less than stellar credit ratings.

The credit card reform act will go into effect beginning in February 2010 and will be enacted in stages. Simply put, it outlaws the practice of raising interest rates on current balances, reigns in fees and eliminates small print.

The credit card industry is currently dominated by six financial institutions that include American Express, JP Morgan Chase, Capital One, Discover financial services, Bank of America and Citigroup. MBNA was a major player in the credit card market but was bought out by Bank of America about two years ago.

The credit card companies saw huge profits over the past decade as more and more Americans turned to their credit cards to fund their purchases. But now the tide has turned. The current economic recession and rising unemployment rates have put a damper on the credit markets as consumer’s thirst for spending has cooled.

Credit card issuers are in fact, losing money now in the billions of dollars because of the rising tide of defaults. As of March 2009, the cumulative debt that Americans owe on their credit cards totals $945 billion. That is up a full 25% from 1999. That’s almost $1 trillion in credit card debt. Truly staggering numbers when you stop to think about them.

Understanding the Importance of Knowing Your Credit Score

Do you realize the significance that your credit report score has on your ability to get credit approval or secure favorable loan terms? Its importance cannot be overstated. While it’s true that your credit rating will have no affect on your ability to buy dinner or a concert ticket, it most assuredly does have an affect on the big ticket items. The big ticket items that I speak of include auto financing, mortgages, business lines of credit, and even credit card applications.

What Is A Credit Score

Your credit score is a three digit number that is basically a numerical summarization of the information contained in your credit report. It is derived from the mathematical formulas that the three credit bureaus (Experian, Transunion, and Equifax) use. Each bureau collects their own information and has its own proprietary formula for scoring your credit. It is for this reason that you will often times see variations in scores amongst the three bureaus. They do not share information with each other.

Your credit score is an assessment of your credit risk. Accordingly, credit scores are rankings that fall somewhere in the range of 350 – 850. The higher the score, the better your chances are of getting credit approval with the most favorable rates. Generally speaking, a score of 720 and above is widely considered to be very good credit.

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What Your Credit Score Means To You

So, how do the numbers break down, and what do they tell respective creditors about you? Most people fall in the 600-750 range. Any score above 650 is considered to be fair to good as far as credit risk goes. But be aware that just because your score is above 650, it does not automatically mean you will qualify for the best rates available. These decisions are made by the lending institutions that you are applying to, and are determined on a case by case basis, so there really are no hard and fast rules set forth.

If your score falls below 650, don’t panic. You may still yet qualify for credit with desirable rates. In these cases you may be asked to provide the respective creditor with more documentation. Remember, the lending institution’s primary concern is your ability to repay the loan, with interest, on time. That is why your payment history plays such a large role in determining your credit score.

Scores below 620 are considered ’subprime’. To creditors, subprime borrowers represent a much greater risk of paying late, or defaulting (not paying at all) on loans. Because of this, the borrowers choices are greatly limited. Even if they are approved for credit, the size of the loan will be limited, and higher interest rates will be charged. We have recently heard quite a bit about the dangers of making subprime mortgage loans with the collapse of the housing market.

The Cost Of Your Credit Score

So, with all this talk of credit scores, how does it really affect you where it counts the most, in the pocketbook. Depending on the size of the loan, interest rate differences of just a point or two can translate into a substantial amount of money over the life of a loan. In the case of many people’s biggest investment, their home, the difference of one or two interest rate points can mean tens of thousands of dollars over the life of the loan.

And the large discrepancies are not just seen in the mortgage market. For auto loans it can mean thousands of dollars. Now if that isn’t substantial, I don’t know what is. It really is in your best interest to do everything you can to strengthen your credit score. While it may not be the most exciting thing in the world, taking the necessary steps to improve your credit score is well worth the time and effort.

Top 5 Benefits Of A Gasoline Card

Gasoline is a necessity that is now in the same category as food, water and air.  Driving to school, the office and to miscellaneous trips throughout the day can really eat away at the money in your bank account. When you are forced to drive many places and many miles, the use of a gasoline credit card can be very beneficial.

A gasoline credit card is a credit card that provides you with a rebate or cash reward for your gasoline and gas station purchases.

Counting Down The Top 5 Benefits Of A Gasoline Card

  1. Quick and easy– You can save time from having to pay with cash or trying to remember your PIN to your Debit card. Slide, pump and go.
  1. Emergency expenses– If you are traveling out of town or out of state and a vehicle emergency occurs, your card can assist you in paying for towing or other needed purchases.
  1. Earn rewards/rebates– While you purchase gasoline or that morning cup of coffee you are earning cash back rewards or rebates for future use.
  1. Save money– By using your gas card you can prevent yourself from spending excessively out of your bank account. Using your gas card for gas only is helpful.
  1. Build good credit– By using your credit card wisely and making timely payments you build solid credit history.

A gasoline credit card can be helpful in building credit, emergency purchases and earning rewards. By taking the time to review credit cards online, you can find the card that best suits your needs and may be just what you need for your next trip to the gas station.

The Senate Weighs in on the Credit Card Holders Bill of Rights

The United States Senate is now doing their part in imposing restrictions on what credit card issuers can and cannot do with their customers. Sen. Chris Dodd (D – Connecticut ), chairman of the Senate Banking Committee, hopes that the legislation will pass this week. Pres. Obama, who supports the legislation, has already stated that he would like it on his desk by Memorial Day.

At the heart of the bill are restrictions against the credit card companies arbitrarily raising interest rates on account holders. It will also make it more difficult for cardholders under age 21 to get a credit card. Predictably, credit card issuers including banks and financial institutions are fighting the bill. Their argument is that it will make it harder for them to grant credit to responsible consumers.

The lobbyists for banks, the American Bankers Association, are warning Senators that at a time when Americans need credit the most they will not be able to get it. In a written statement they said that the bill would, “have a tremendous impact on the ability of consumers, small businesses, students and others to get credit at a time when our economy can least afford such constraints.”

Their argument seems to be getting little traction. In fact, Sen. Chuck Schumer of New York chastised the credit card industry for trying to exploit the recession. He stated that it was indefensible for credit card issuers to be charging such high interest rates at a time when interest rates are currently at record low levels. The bill is receiving bipartisan support. Both sides of the aisle are behind this legislation.

The real hot button issue at the core of this legislation is a concept that is known as “universal default”. Under universal default a credit card company will raise interest rates on the account holder’s past balances whenever the cardholder is late in paying that bill, or any others. The Senate bill would restrict raising interest rates unless the person is more than 60 days behind on paying their bill.

The lenders will not be banned from raising interest rates on future purchases if they believe the person is an increased credit risk. They would however, have to provide the cardholder with 45 days notice in a written explanation. They would also be obligated to review the terms of the account in six months time and then lower the rate again if the consumer has been paying responsibly durng that period of time.

The bill would also require that consumers under the age of 21 have a cosigner such as a parent or guardian, or proof that they have the financial means to pay for a credit card. There is also talk about a limit on how high of an interest rate lenders will be able to charge. Sen. Bernie Sanders of Vermont has stated that he will write an amendment to the bill that will cap interest rates at 15%.

The Best Credit Card Offers Revealed

Those credit card offers you get in the mail are going to be the best credit card offers usually reserved for the best customers. Those with sterling credit reports often are the only ones qualified for these offers and the rest of the world may be approved for something less inviting. Face it, if a person can’t get approved for the best offers, the company is willing to take them on as a customer, but at a higher price.

This mining for customers is perfectly legal, even telling a person they are pre-approved to apply for this card at that rate is not legally wrong. The best credit card offers also should contain a disclaimer that indicates that those not approved for the low-interest offer can be selected to receive a card at a higher interest rate. Possibly even an annual fee will be assessed if you take advantage of a lower offer.

Some of the best credit card offers come from the major card companies such as American Express, Bank of America and Capital One, while other card companies hold back on making great offers, instead offering cards to those who do not qualify for the lowest interest offers. These companies can make a fortune dealing with those who classified as a high risk as they can basically charge what they want and customers who do not qualify elsewhere have little choice if they want a credit card.

Living Without A Credit Card Can Be Inconvenient

Paying for the convenience of having a credit card can be expensive, but the alternative can be challenging. Renting a car, booking a motel room or airline flight can be difficult without a major credit card. Purchasing online with a branded debit card is becoming more accepted, however some companies still require a credit card for deposits.

Additionally, those living on their branded debit cards may find times when a few extra bucks until payday might be needed. Medical emergencies and trips to the doctor or pharmacy do not usually come around when the coffers are full and taking advantage of one of the best credit card offers may be a good idea. Check to make sure you don’t get charged extra for not using it, but one it arrives a small purchase and quick payoff can have a two-prong benefit. First, it keeps the card active and second, it gets reported to the credit bureau that you are a good credit risk.

Some of the best credit card offers will offer more than a temporary low interest rate and a temporary low rate on balance transfers from other cards. The rates should be available for as long as you maintain a good credit standing. There will usually be a grace period on purchases as well as on cash advances from the best offers available.


Low APR Credit Cards – Tips On What To Look For

Low APR credit cards are cards that carry a lower interest rate than most other types of credit cards. The APR stands for annual percentage rate and is still calculated the same way as with other types of credit cards which makes it easy to compare different offers if you are planning to apply for a low interest rate credit card.

Low rate credit cards are beneficial to people that carry a credit card balance from month to month because they will save a significant amount on finance charges. Although Low APR cards are better than traditional credit cards, it can be harder to qualify for one, especially if you have poor credit.

There are many places you can go to find credit cards with a low interest rate and many things you should consider when choosing the offer that best suits your financial needs.

Of course, the biggest consideration when looking for a low APR credit card is the interest rate. Most cards have a lower interest rate for an introductory period. Many banks and credit card issuers offer 0% interest for a limited time and although this rate can apply to all purchases, sometimes they only apply to charges from balance transfers.

The introductory period is best used to consolidate other credit cards that charge a higher rate onto a single  credit card. This will help you to reduce your finance charges and will allow you to pay off your balance more quickly.

Some low APR credit cards charge a fee for balance transfers and others do not. Sometimes you can get these fees waved so it is best to find out all the terms before you apply to make sure you will not be charged.

Low annual percentage rate cards can have interest rates after the introductory period that are up to 10 percentage points (or more) lower than traditional credit cards. They are a great way of saving on finance charges for people who carry a monthly balance on their credit cards or have debt that they want to pay down faster. Because of the reduced interest rate, people with poor credit scores may not be eligible for some of these offers.

There are also other factors to consider before you apply for a low APR credit card. These types of cards may offer other advantages and incentives such as cash back, discounts, and rewards. If they do not, you can still use a card that does for purchases that you will pay off immediately and then use the card with the lower interest rates for purchases that you will carry over.

Even if you do get a low APR credit card to help consolidate your credit card debt, you should not necessarily close your old credit card accounts. Maintaining credit accounts for a long period will reflect well on your credit rating as well as having a low debt to credit line ratio.

There are many different low APR credit cards available on the market. You should carefully consider the rate and terms of every offer that interests you before you apply to make sure it is the best card to meet your financial needs.

Low and Middle Income Americans Relying More and More on Their Credit Cards to Pay for Their Basic Living Expenses

A new survey commissioned by the advocacy group Demos revealed some interesting and somewhat frightening information. The general consensus has always been that people with substantial credit card debt are living beyond their means and spending frivolously. Well, it turns out that that’s not always the case.

Many low and middle income Americans have in increasing numbers turned to their credit cards just to pay for their basic living expenses such as rent and mortgages, groceries and utility bills. Hardly lavish spending wouldn’t you say? The survey found that more than one third of respondents have turned to their credit cards to pay for these basic living needs… food and shelter.

Over the past 12 months people that responded to the survey have used their credit cards to make on average five months worth of payments. The survey also found that one out of every two households use their credit cards to pay for out-of-pocket medical expenses.

The average credit card debt of those surveyed was $9827. The average interest rate of their credit cards was 14.8%. And for a truly frightening number… nearly 25% of those surveyed said they are paying in excess of 20% interest on their credit cards.

It was also reported that the respondents have been in credit card debt for an average of 5.1 years. And of course, that number is only going to grow.

While the recession has most certainly made things worse, people using their credit cards to pay for their basic living expenses is not a new phenomenon.

As José Garcia, the associate director of research for Demos stated, “One of the biggest myths about the rising credit card debt is that it is a result of frivolous spending.”

Well now we know better.

The bottom line is that we number one, have got to be more responsible with our use of credit and number two, we need this damn recession to end.