Credit Card 101: Advice Before Shopping

The numbers of bankruptcies is again on the rise after the tough bankruptcy law of 2005, and they are returning in large numbers.


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High gas prices, rising interest rates, adjustable mortgages, easy credit and lack of adequate health insurance for many Americans, can all contribute to the rise in debt and many Americans are turning to their credit cards for temporary relief.

The American Bankers Association (ABA) 2005-2006 Consumer Payment Preference Study reports that credit cards represent 19 percent of consumer in store payments, 55 percent of internet payments and an increasing number of online bill and automatic payments.

James Chessen, ABA's chief economist, said of the results, "The Federal Reserve continues to raise interest rates and high energy prices are taking a bite out of disposable income. Not since the Great Depression has the national savings rate remained below zero for so long." He added, "Absent savings to cushion financial stress, some consumers end up missing a payment on their credit card loan." Late payments rose 13 percent in the first three months of 2006.

These factors, coupled with negative numbers in personal savings in the U.S., which has been negative for five consecutive quarters, according to data from the U.S. Department of Commerce Bureau of Economic Analysis, means that Americans are using potential savings to meet living costs.

President Brad Stroh of Bills.com feels that consumers debts are growing without conscious decisions being made. "For those who are over their heads in debt, taking action quickly is critical, before it's too late to prevent any temporary hardships from becoming permanent financial crises," he warns.

Stroh has six steps that he says, if followed, will minimize the damage of mounting debts.

  1. First and foremost, stop charging. Consumers are falling back on credit cards and using them as "emergency funds", often doing more harm by charging items that they don't need and that are not necessary.

  2. Always pay bills on time. Pay on time, even if you can only afford a minimum payment. Penalty rates for late payments can be crippling, as high as 31 percent, which in turn leads to a higher balance and higher minimums and big late fees. Cards may even raise the interest rate if you are late in payment to another creditor.
  3. Pay more than the minimum. Promise yourself that you will pay more than necessary when ever you can, even if it is $10 and round the amount out to the next $10 or $100 increment. By doing this, you decrease the debt faster.
  4. Pay the highest interest debt first. Pay more on the debt that is charging the highest rate and move down in order of the rate, saving the lowest rate debt for last, such as a student loan.
  5. Negotiate your rates. If you pay on time and have a bigger debt than you would normally have, you might be a company's ideal client, so try to capitalize on a good payment history by getting your rate lowered, especially if it is above the 14.67 national average. Call customer service and ask. Try more than once.
  6. Get help. There are many sources that can provide help with debt problems and advice on how to get out of debt, especially in cases such as medical problems that have resulted in short-term debt. Borrowing money from family or combining old debt onto a no-interest, lower interest card are some ideas, as are borrowing against life insurance or retirement funds.

Bills.Com, is a free, online service for consumers who need help on complex and personal financial issues. The California company's co-founders and CEOs, Brad Stroh and Andrew Housser, were recently named finalists for Northern California by Ernst & Young's 2006 Entrepreneur of the Year Award. They handle more than 7,500 clients, nationwide.

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