When Credit Card Debt Overwhelms

When Credit Card Debt Overwhelms

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Published on November 21, 2012 by
Categories: Credit Cards, Financial Planning

Put ten people into a room and statisticians say eight of those ten will be able to answer in the affirmative to questions such as:

Do you routinely turn off your phone’s ringer because of all of the debt collectors who call? Do you lose sleep because you’re worried about how you’re going to meet your credit card payment obligations? Do you shop with cash often because you’re overdrawn at the bank?

All of these questions are asked to discover one thing: whether or not you’re overwhelmed with credit card debt. These days, consumers feel more out of control than ever before when it comes to their financial obligations. They feel as though they are being held hostage by that debt in at least a few ways, including fearing the sound of their phone ringing. While many of us can work ourselves through a few rough patches that come with cash shortages, there’s a growing segment of Americans whose problems go far deeper and require more than just a few cost cutting efforts.

Not Yet a Crisis

If your problems aren’t at a crisis, but they’re beginning to weigh on you, here are a few things you can do to keep that small problem from evolving into an overwhelming burden.

Consider doubling up your credit card payments. This is important for a few reasons. First, you’re paying down your debt faster, but you’re also paying less in finance charges, too. If you can’t double up on payments, consider making one and one-half payment.

Know what your total debt is. While that seems like an obvious tip, the fact is many simply have no idea or they don’t understand how interest is calculated and other factors that play a role in determining debt totality.

Keep your debt load to no more than 20% of your take home pay. Also, keep your credit card balances at or below 30% of the credit line. Anything more and you risk a few drops in your credit rating.

If you’re not in too deep, you might discover a balance transfer card can be a powerful tool as you take those positive steps.

Chase Freedom

The Chase Freedom card allows you to transfer balances interest free for fifteen months, plus you’ll earn $100 bonus cash back after you make $500 in purchases during the first ninety days of opening your account. The no interest intro APR applies to purchases, too. Earn cash back on up to $1,500 spent at hotels purchased directly from the hotel, airlines – again, when purchased directly through the airline and several retailers, too. The 5% categories rotate every three months for even more cash back opportunities and for all of your other purchases, earn 1% cash back. Finally, a 10% cash back opportunity is yours when you shop through the Chase online network. No annual fee and no expiration on your rewards top this offer, making it ideal if you’re trying to rein in spending.

Self Discipline

But what if your debt problems are little worse and require a little more than a little added discipline? It might be more challenging, but you can still turn that boat around.

Discipline yourself to avoid making minimum payments. This is the single most important thing you can do to eliminate credit card debt. There’s not a single financial counselor out there who wouldn’t tell you that should be your top priority. Also, you should understand your debt to income ratio. This is important for a few reasons. First, you can see how overextending yourself looks like. It also means that if your ratios are disproportionate, the odds of getting additional credit when you really need it might be impossible. Creditors take these factors into consideration.

Don’t underestimate all of the new information your credit card statements now reveal. This was part of the 2009 CARD Act which requires lenders to be far more transparent than what they’ve traditionally been. It tells you how long it’s going to pay off that current balance using only the minimum payment option. That is definitely an eye opener for many.

Tough Questions

Financial planners say there are a few questions to ask yourself if you’re thinking you might be a shopping addict. These are important and if you recognize yourself in any of the scenarios, it’s time to rethink everything you thought you knew – and consult your own financial counselor. Play these scenarios out in your mind:

You have $200 in the bank two days before payday. Your electricity bill is due now and you must pay it. It’s $170. Your friends from Accounting just called and said, “Let’s go get a drink after work”. Do you go and charge your drinks to your Visa, thinking you’ll just make sure you pay the minimum amount due plus whatever you spend tonight so you don’t have to pay interest on your Malibu and Pineapple cocktails. Drinks to drink, electricity not in danger of being cut – it’s a good day. Is this something you’d do?

You have $50 to spend on your best friend’s birthday. You know she’s had her eye on this DVD box set of her favorite show. Only problem is, you don’t have an extra $100 lying around. Do you buy her a nice gift for less than $50 and make a mental note that maybe you can get her that DVD collection at Christmas or do you go ahead and buy it now, charging it to your Discover card?

Do you call the automated number to see how much available credit you have at different times of the month?

Do you pay the minimum amount due two days before your due date with promises to yourself to make another payment before the next statement comes? Somehow, though, it just never happens.

If any of this sounds like you, it might be time to consider seeking a bit of financial guidance. The tools you’ll gain by working with a counselor can be lifelong gifts that will help you better handle your finances with no more worries about meeting your financial obligations. It takes discipline, but it also works better when you understand what you’re doing and why you’re doing it.

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