Credit Cards – How Much Do We Really Owe?

Credit card debt seems to be growing and people are getting more and more concerned. Americans are once again polarized.

Some like David Ramsey encourage consumers to shred all credit card applications and buy only things they can pay for in cash. Some say that a mature person can use loans and credit cards for his or her benefit. Of course, there are some things most people need but can not buy with cash like cars and houses.

Student loans are also looked upon as a necessity. That is why credit cards are mostly under attack. It is a widely known fact that an average American carries about $8,000 in credit card debt.

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However, this number is often misinterpreted. It actually shows how much an average American household that has a credit card owes to the card-issuing financial institution. Moreover, this number is greatly influenced by credit card users with enormous credit card debts thus making the average number so shocking.

According to the recent Federal Reserve report, if you add together the number of households that do not use credit cards or own nothing on them you will see that more than half Americans have no credit card debt. The median credit card debt for those that do carry a balance is a little bit less than $2,000. Almost half of them owe less than $1,000. This figure seems to be far less alarming. Especially if you take into account the fact that the situation with paying off credit card balances is slightly but constantly improving.

The data provided by the Federal Reserve System does not differ much from the one disclosed by another acclaimed credit resource – Fair Isaac. Only a little bit over 50% of Americans with credit history owe more than $1,000 on their credit cards. More than 50% credit card owners use less than 30% of their credit line. That means that Americans are not as irresponsible when it comes to money as they are portrayed.

So does this mean that the problem of credit card debt does not exist? It surely does. Although most consumers try to avoid high balances on their plastic but there is still a significant part that is balancing on the razor’s edge.

One third of those who have more than $10, 000 in credit card debt have a household income of less then $50,000. The number of bankruptcies filing is still extremely high with about 1.5 million personal filings a year. Another problem is unfavorable policies credit card companies use to make more money especially on those clients that fail to pay off their full balances on time.

Definitely, the government needs to step in and force the banks to make credit card terms and conditions less confusing for average consumers. But the biggest issue is financial literacy. People need to be more educated about credit and its costs. Americans need to learn to compare credit card offers before mailing another credit card application and calculate the amount of money they will need to pay back. The situation with credit card debt is not as terrible as it is usually described by the media but there are still many problems to be solved.

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How Long Does Credit Repair Take?

If you are looking for a quick fix to your bad credit read no further. Real credit repair is hard work, time consuming, and an ongoing affair. For whatever reason your credit needs fixing, be it a divorce, bad personal decisions, loss of job, or any other of a hundred and one reasons, it can be accomplished, but with time and effort. How much time? Seven years on average for most bad debt situations, excluding instances where a bankruptcy is filed. When a bankruptcy is introduced into your credit file, it will stay put for an average of ten years! Those lengths of time in reality are longer. They start from the time the information was listed or filed, not from when the debt occurred.

The Credit Repair Handbook: Everything You Need to Know to Maintain, Rebuild, and Protect Your Credit by John Ventura How to identify problems with credit, rebuild credit histories & boost credit scores, & protect credit from identity thieves. Comprehensive, thorough, and up-to-date, this is the only guide readers will need to get your financial lives back on track.

Disputed Information in Your Credit Report:
Your first defense in cleaning up your credit file should be to know what is in it. The three major credit-reporting agencies are Equifax, Experian and Trans Union. If you have recently been denied credit, you may be entitled to a copy from the reporting agency free. Laws are also under way to ensure everyone has the right to a free combined report yearly. For now, a copy of each can be purchased from the individual agencies for a nominal fee. Once you have the reports, go over them carefully. If you notice any errors, file a dispute report. Information from each company will be included with the reports on how to file. Transunion offers convenient web access to file a dispute instantly. Be aware that when a dispute is in progress it is best not to apply for any new credit. Most disputes will be resolved within thirty days. A note of caution: Be sure to only dispute actual discrepancies. Frivolous disputes are not treated lightly.

What Can You Dispute:
All errors. For example, upon recently applying for a car loan, I was denied. I had what I thought was good credit. Upon receiving a copy of my credit report, imagine my surprise when it came and showed active accounts for not only my current mortgage, but a duplicate for the same…My bank had recently been acquired by a larger bank. Account numbers were changed, but no one notified the credit agencies that the old loan numbers were closed. It looked as if I was paying for two houses on my relatively modest income. The same for an overdraft account on a checking account through the same bank, and what was actually a checkbook balance to the good, showed as a loan. We still have not actually figured that out, but it was removed successfully from my credit report.

FTC:
The Federal Trade Commission can offer additional assistance to consumers who believe they are not being treated fairly.

Assess:
Assess how you got where you did. Be honest with yourself if there is any doubt about how you have arrived where you are. If the reason for your bad credit is a one-time life occurrence, such as the death of a spouse who was under insured and the main breadwinner for instance, the outlook may be bleak, but probably not as bad as you think. If you have a tendency to buy first and think later about how you are going to pay for that must-have purchase, take an honest look at how these ‘purchases’ affect your life.

Interest:
Oftentimes, people are truly astounded when they look at how much interest costs them on a month-by-month basis. Everyone, seemingly, wants to get credit at a low rate, but even those that truly shop for the best rate they can qualify for, often do not look at the actual cost their credit costs them from month to month. Pull out your statements and look at the bottom line: How much of your payment went towards the principal? How much went towards the interest? Quit a shocker, isn’t it? This is the fastest way to explain why it is necessary to pay as much as you can afford on any money owed. For every dollar paid towards the principal amount owed, it will be that much more, additional interest saved.

Keeping Out of Debt:
Once you have found the edge of your debt and crawled over it, keeping from falling back in, can be as hard, or harder, than it was to get out. You suddenly feel rich, like all the burdens of the financial world you call life, have been lifted. Stay strong, be realistic, and make a list. A list? That's right, a list of goals, wants, needs, etc., along with a budget, will give you hard insight into what and where your money needs to be spent on. If you are not by nature a list maker, you may scoff at this, but try it. Pick up a notebook from the local dollar store, and within its pages; map out a budget. Start with the basics, such as mortgage/rent, insurance, utilities, vehicle expenses, including car payments, insurance, and gasoline, and don’t overlook groceries, annual bills such as tax payments, or visits to the vet for your dog or cat’s yearly shots. Be generous when you mark down what you spend on each item, do not mark less, thinking you can get away with spending $50 a week on groceries, when you know you currently spend at least twice that much. You may be able to spend only the $50, but at this point, we want the ‘big’ outlook of your spending.

Next, make a list of things you would truly like to purchase in the next year or two. Also, make a note of how much you spend on holiday shopping, and other gift giving, such as birthdays for both family and friends. This list may grow in the coming days, as you remember this one or that, but do not worry, that is why we are making the list. Often overlooked when making a list such as this, but that should be a priority, are two items: Savings and fun money. If you tell yourself that you are going to put away a set amount off the top of each check for savings and do it, after a learning curve, you truly will not miss it. It may hurt at first, but once you see that amount grow, it can actually be a bit addictive and you will find yourself trying to save a few dollars extra here and there. The fun money is just as needed, even if it is only $5 a pay period. You work for the money. Do not begrudge yourself a favorite magazine or a couple of lottery tickets, if you truly obtain pleasure from purchasing them. Now, once you have down all the expenses you can possibly think of, write down what your earnings are. If the bottom line does not meet what your expenses are, see if you can trim your expenses anywhere. Be realistic; remember you do have to eat! If the figures do not add up, and you have cut everything you can, think about ways to increase your income. A second job, a possible raise, selling a few possessions, even a stay at home spouse taking on a part time job. A few final words: Keep a perspective of your spending. It is only money and it will only do what you allow it to do.

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When You Should Not Use Credit?

Decades ago, it used to be that credit purchasing privileges were reserved for the rich and famous. While farmers, miners, and other small blue-collar communities could buy "on credit," large-scale purchases were made primarily by cash.

Not anymore. Today, it is rare to meet someone who does not use a credit card. Many people have several. The down side of this development is that with the easy access to credit card use, consumer debt has mounted significantly, with some hapless victims running tens of thousands of dollars into debt that may be difficult to escape without incurring bankruptcy.

If you have a credit card or are thinking of getting one, here are a few guidelines to consider in making purchases.

• Don't charge if you can't afford to pay it off in one statement cycle. For many middle-class consumers, the limit might be an amount in the range of a hundred dollars. Charging a more expensive item could impact your monthly budget if you strain to pay it off, jostling existing obligations. Or you may be tempted to make several monthly payments instead of paying the balance in full with the first statement. Check your credit terms to see if interest accrues from the date of purchase or when the first billing cycle (usually 30 days) ends.
• Don't charge if you don't need it. "Make do or do without" is the motto of some thrifty people. A "needed" charge expense might be an unexpected car repair or a veterinarian bill, though a healthy budget includes savings for items like these. A new dress or shirt along with a visit to a classy restaurant are not true "needs" for most people. Pause before pulling out the plastic to determine if this purchase is worth the eventual wear and tear on your wallet.
• Don't let someone else use your charge card. Even well-meaning friends or family members can get careless about paying back a charge on someone else's account. The old saying "business and family don't mix" particularly applies to a credit situation. Keep your card to yourself.
• Don't buy something just because it's on sale. Those 50 percent off signs are like magnets, pulling us in against our will. A lower price doesn't necessarily mean you need to rush out and buy something on discount. Consider it only if you have been planning the purchase for some time.
• Don't charge presumptuously. "I'll pay it off with the income tax refund." Sometimes expected windfalls blow the other way. You don't want to get stuck with a large debt and no way to pay it off. If you plan to buy something using a special or one-time income, wait until you have the money in hand. It's safer that way and you'll have peace of mind.
• Don't be pressured into charging a purchase. Guilt, joy, forgetfulness, or empathy can cause us to want to run out and buy something for another person that they may not need and we cannot afford. The resulting charge will only make you feel worse when the statement comes in the mail.

Credit cards can convey a sense of financial power and well-being. But the mature consumer will control his spending and credit card use before it takes control of him. If you are having trouble limiting your credit purchases, meet with a financial adviser who can help you set limits.

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