Beware Of Debt Settlement Scams
Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make for example, promises or guarantees to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts a practice prohibited under the FTCs Telemarketing Sales Rule for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many consumers drop out without settling their debts, that consumers credit reports may suffer, or that debt collectors may continue to call you.Avoid doing business with any company that promises to settle your debt if the company:
- charges any fees before it settles your debts
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors, but doesnt explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
People Pay Just The Minimum Payment Amount
There’s a big misunderstanding among many cardholders that as long as they make the minimum payment, they’re fine. It’s true that paying the minimum is enough to avoid the fees that credit cards charge when you don’t make a payment on time. However, it can take years to pay down a credit card balance if you only make minimum payments, because those minimums are often just barely enough to cover the interest charges.
Even if you can’t pay off your balance in full every month, your goal should be to do so as soon as possible. Make payments that are as big as you can afford, and it’ll help you get out of debt more quickly.
Special Cautions For College Students
College students are often short on funds, and credit card companies have been very willing to step in to fill the gap. These credit cards typically have high APRs, and students regularly find themselves unable to pay their debts. Under the CARD Act of 2009, creditors are not allowed to issue cards to people under age 21 unless they have adult co-signers on the accounts or can show proof that they have enough income to repay the debt. It’s also now illegal for credit card companies to be within 1,000 feet of a college campus offering complimentary pizza or gifts to rope students into applying for credit cards. Still, there are plenty of 21-year-old college students who have managed to rack up considerable debt by graduation.
If you are a college student, you may want a credit card for emergencies. But follow these tips to avoid graduating with substantial credit card debt:
- Stick to cash or a debit card except for emergencies
- If you do get a credit card, look for one with a low interest rate and APR
- Enroll in a financial literacy class. Lots of colleges offer them for free, or you can try an online program called CashCourse, sponsored by the National Endowment for Financial Education.
- Don’t overspend: create a monthly budget and stick to it. If your expenses outweigh your income, consider getting a part-time job
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How To Control Credit Card Debt
Learn as much as you can about your current credit cards and any you want to apply for. Review the card issuer webpages carefully, comparing credit card terms and conditions and benefit guides. Knowing how and when youll pay will help you use credit wisely.
Establish spending rules for your cards and stick to them. For example, only use your credit card for groceries or routine car maintenanceboth expenses your budget should already support.
Prevent credit card debt by establishing in advance how much you can charge each month. Make sure you base that figure on what your bank account shows you can afford.
Youll face both late fees and interest charges if you dont pay on time. Your card issuer might also raise your APR to the penalty rate outlined in your cards terms and conditions, depending on how late you pay. Set up calendar alerts or automatic payments if you have trouble remembering due dates.
Penalty rates are often around 30%.
Keep tabs on your spending by checking your credit card accounts each week. Seeing how quickly charges can add up and consume a credit limit might inspire you to pay off the balance more quickly.
Avoid taking cash advances. Using a credit card for a cash advance means paying higher interest charges and transaction fees, and these transactions typically dont have a grace period. Interest is charged starting the day you take out the advance, not when the billing cycle closes.
Option : Call Your Creditors To Negotiate
Debt negotiation allows you to work directly with your creditors to ensure your debts gets paid off. There are several levels to negotiation, depending on where each account stands and what you need to accomplish:
Instead of hiding from your creditors when you have trouble, work with them to find a solution.
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Average Credit Card Debt By Location And Generation
After growing for eight years in a row, the average credit card balance dropped by 14% and $8793 from 2019 to 2020, according to data from Experian.
- Credit card balances fell across the U.S. and states where consumers had the heaviest debt loads saw the biggest decreases. The average balance in the District of Columbia fell by 20% to $5,6713 in 2020.
- In California, it dropped by 18% to $5,1203 and in New York, it declined by 17% to $5,4143. At the other end of the spectrum, the average credit card balance in North Dakota fell by only 8% to $4,8653.
- Americans of all ages reduced the amount of card debt owed during 2020, with older Americans decreasing theirs the most. Members of the Silent Generation paid down outstanding credit card balances by 16% to an average of $3,1773. Baby boomers lowered card debt by 12% to an average of $6,0433 while Gen Xers reduced theirs by the same percentage to an average of $7,1553. Millennials decreased outstanding credit card debt by 11% to an average of $4,3223 while the members of Gen Z old enough to have card debt lowered theirs by 6% to an average of $1,9633.
Get A Written Copy Of Your Agreement
If you choose to move forward with a financial relief option, its important to understand the terms of the agreement before agreeing to anything. Once youve accepted a relief option, make sure to get a copy of the agreement in writing.
During the relief period, you want to make sure to look at your statement each month for any errors or inaccuracies, and if you see anything, make sure to refer back to the agreement so you can dispute it.
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It Takes Time And Determination To Conquer A Mountain Of Debt
But if youre equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. Plus, you dont have to tackle that mountain of debt alone credit counselors are available to help.
Of course, no two attempts to conquer debt are the same a debt reduction plan that works for one person may not work for another. And unless you stick to your plan, youll likely have a tough time chipping away at your debt.
If youre not sure how to tackle your credit card debt, weve got some advice on steps you can take. While this advice wont guarantee success, it can help point you in the right direction.
Top 10 States With The Most Credit Card Debt
Alaskan consumers owed the most in 2020, carrying an average credit card balance of $6,617, according to Experian. Their balance is $1,302 less than the national average. On the opposite end of the spectrum, consumers in Iowa carried the lowest average credit card debt of $4,289$1,026 less than the national norm.
Here is an overview of the top 10 states where consumers carried the highest credit card debt as of Q3 2020:
- Alaska: $6,617
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Average Credit Card Debt By Race
People who identified as white reported their families carried an average of $6,940 in credit debt the highest amount of any racial group.
They were followed by “other” which includes Asians, American Indians and people who identify as multi-racial with an average credit card debt of $6,320. Black households carried the least debt with an average of $3,940, which is 37% lower than the nationwide average.
Know Your Negotiation Options
Before negotiating with a credit card company on your own, you should get familiar with the types of settlement options that are typically available to consumers. If the credit card company is willing to entertain the idea of a debt settlement, then the odds are high that it will want to make one of the following arrangements.
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Managing Your Credit Card Debt
We all have heard someone say: Someday, Im going to get rid of this credit card debt. The first step to getting there is to eliminate the word someday from that sentence.
If you really want to get rid of credit card debt, you really have to make a commitment to the project. You have to put a plan in place that includes:
- A budget
- A time frame with a start and pay off date
- Goals that are reachable and accountable
- A willingness to sacrifice some of the spending that caused this financial crisis.
Here are some steps you can take along the way that will improve your chances of success:
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Using Credit Cards As Atm Cards Or Gift Cards
Many credit cards allow users to withdraw cash from ATMs or write checks against their credit limit. But these transactions come with a cash-advance fee, which can be as much as 3.5%. Basically, if you were to take out $500 from an ATM using your credit card, you might see an additional $17.50 on your credit card statement this month. Further, if you dont end up repaying the $517.50 by the due date, interest charges may apply.
What you can do instead: A good option is balance transfers, or the ability to transfer the debt of one credit card to another credit card. The idea is that you can transfer your debt from a card with a high interest rate to a card with a lower overall interest rate, reducing the amount youll owe. This option can be useful when there is a zero-interest, low fee balance transfer, and you are confident that you can pay off the debt you are transferring before the promotional rate on the new card expires.
Editors Note: The opinions expressed here are for general informational purposes only. It is important to do your own research and analysis before making any financial decisions. We recommend speaking to an independent advisor if you are unsure how to proceed.
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How Many Credit Cards Is Too Many
Dont overextend by signing up for too many credit cards at once.
Some people happily acquire credit cards solely for welcome bonuses and then cancel the cardoften before the annual fee charge arrives after one year. This is known as churning-and-burning. Aside from the difficulty of keeping track of all this activity, theres the added drawback of how it can affect your credit score. Theres also the possibility that even if your credit score remains solid, opening too many accounts in a short amount of time could result in your bank denying you a new card.
Before signing up for too many cards, consider what each card can offer . Weigh the available bonuses against any card already in possession before making a decision. Dont get seduced by bonusesthink about what you need.
Disadvantages Of Credit Card Debt
Contrary to popular belief, carrying credit card debt does not improve your credit score. Using credit wisely improves your score. This means charging only what you can afford to pay off each month, making on-time payments, and keeping your balances as close to zero as possible.
Consider what youre giving up by paying interest on card debt every month rather than investing that money elsewhere. That money could be valuable savings for retirement, your emergency fund, or a down payment on a house.
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Pay As Much As You Can Each Month
If you can make higher repayments each month, you will pay off the debt faster and save money.
Work out the fastest way to pay off your credit card.
If you only pay the minimum, you’ll pay a lot of interest and it will take years to pay off your debt in full.
If you’re finding it hard to pay the minimum amount, contact your bank or credit provider straight away or talk to a free financial counsellor. Taking action early stops a small money problem from getting bigger.
Use The Debt Snowball Method
Use the debt snowball method and start paying off your credit cards smallest balance to largest. Okay, we know youre thinking about those interest rates right now. But what you really need is a win. You need one of those credit cards gone. Quickly.
The debt snowball method is all about building your motivation and momentum by attacking one credit card debt at a timeand going after the one you can get out of your life soonest first. That quick win is super inspiring and key to getting out of debt.
Okay, so how do you attack each credit card? You need to free up more money or start making more. The next tips show you how!
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Spending More Than You Make
If you live in the United States and spend more than you make, you’re part of the norm. More than 40 percent of Americans spend more than they make, leading to a debt-centered financial life . Spending more than what you make sells your income to the future. Without a plan to catch up to the cost of the money you’ve already spent, your debt will accumulate more debt through interest.
Living month-to-month also creates a situation where you have nothing to fall back on if money runs out. And unfortunately, this over-spending lifestyle perpetuates the myth that we’ll catch up on our debt in the future, keeping us in exactly the same situation year after year.
But spending less than your salary has never been the model that most people grow up with in the modern world, even though saving up and paying cash keeps us better positioned for the future. Your monthly income should be dedicated to future planning and present comforts, and you should pay money into your savings to reach goals and achieve whatever amount of financial security you desire.
However, even the most disciplined and creditor-savvy consumers can fall into debt in the blink of an eye. While over-spending isn’t the issue for everyone, personal emergencies touch households daily. Financial advisors generally recommend a savings of at least six months or more to cover costs for emergencies, but with an average of less than 6 percent of U.S. incomes going into savings, most emergencies have to be financed .
Use The Card For Needs Not Wants
A credit card should be used carefully. Frivolous purchases can lead to debt. Credit cards can be used in emergency situations, such as a mobile phone bill thats due before your next payday. Use the credit card as a temporary loan to yourself, and then pay back the amount as soon as you can to decrease or avoid interest charges altogether.
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How To Get Credit Card Debt Relief In Canada
If youve been using your credit cards as a financial lifeline, its now catching up with you and you want to know how to get credit card debt relief, here are Canadian options, plans, programs, solutions, and advice in short, straight answers.
When your credit card debt is so high that it doesnt feel like the minimum payments actually pay anything down, taking steps to get relief from your credit card debt will ease your money worries. With the right help and advice, you should be able to put together a plan to get your finances back on track and get out of debt.
Depending on your situation, you may be able to negotiate a better interest rate for yourself, but you may also need someone to negotiate relief from credit card debt for you. Heres how to do both.
Stay Under 30% Of Your Total Credit Limit
One way to keep your credit score healthy is to keep your credit utilization ratio under 30%. This credit utilization ratio is the percentage of total available credit that youre using. For example, if your limit is $1,000 you should keep your balance under $300. But the ratio applies to the sum of all your cards so if one credit card has a $3,000 limit with a $3,000 balance and a second card has a limit of $7,000 with no balance, youre right at the 30% mark which is where you want to be.
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