Credit Card Debt

Did you know?

• The average American households credit card debt in 1990 was $2,966. In 2007 it was $9,840.  

• 60% of U.S. consumers always (or usually) pay off their bills in full each month. Those who don't pay off their bills each month are called revolvers. In 2007, revolvers paid $18.1 billion in penalty fees to credit card companies. This figure is up more than 50% since 2003 and accounts for approximately half of the industry's 40.7 billion in profits.

• In October 2007 credit card debt that was at least 30 days late totaled $17.6 billion, up 26% from October 2006.Some credit card companies, including Advanta, GE Money Bank and HSBC, are reporting a 50% increase in accounts that are at least 90 days late compared to the same time last year
  (SOURCE: Rachel Konrad and Bob Porterfield, Associate Press Writers)

• At least one in ten consumers have more than 10 credit cards in their wallets. However the overall average number of credit cards per consumer is 4.
  (SOURCE: Experian's "National Score Index")

• 29% of low and middle income households with credit card debt reported that medical contributed to their current balances.(SOURCE: www.demos.org )

• U.S. consumers racked up an estimated $51 billion worth of fast food on their personal credit and debit cards in 2006, compared to $33.2 billion one-year ago.
  (SOURCE: www.carddata.com)

• Approximately half of all credit card holders don't pay the full amount of credit card charges each month. About 11% say they usually pay only the minimum monthly payment but not much more .(SOURCE: Experian-Gallup Personal Credit Index survey)

• According to the Federal Reserve Bank, 40% of American families spend more than they earn.(SOURCE: www.federalreserve.gov)

• 23.8% of American households have no credit cards at all -- no bank cards, no retail cards, nothing. 31% of the households paid off their most recent credit card bills in full  ( SOURCE: Liz Pulliam Weston, www.asklizweston.com )

• Only one household in 50 carry more than $20,000 in credit card debt.However, that "one in 50 households" figure represents more than 2 million American homes.
  (SOURCE: Liz Pulliam Weston, www.asklizweston.com)

• On average, the typical credit card purchase is 112% higher than if using cash.

• 96% of all Americans will retire financially dependent on the government, family, or charity. (U.S. Dept. of Health & Human Services)

• U.S households will receive approximately 5.3 billion offers for new credit cards in 2007.(SOURCE: Synovate, mailmonitor.synovate.com)

• A $100 pair of tennis shoes purchased with a credit card actually cost $512 when the minimum payment is made for 36 months at 18% interest.
  

  
   

  Keep Your Hands off Your Nest Egg by Colette Dowling Thinking of borrowing from your retirement savings to pay off debt? Think again. When money's tight, or when there is something big you need to buy, how tempting it is to think of tapping into your 401(k). Sometimes your retirement plan can look like "found money" -- especially if you have been having regular payments deducted from your paycheck. If you have made smart investments, you may be sitting on a pile of money right now. Is it a good idea to borrow this money? The short answer is no. First, remember why you have a 401(k). Congress established these savings plans to encourage us to fund our own retirements rather than rely on Social Security (which isn't enough to fund the retirement of a flea). To entice us to take responsibility for our own golden years, the government allows us to invest pre-tax dollars, which lowers our current tax liability and also permits the earnings to compound tax-free until you withdraw them. But you are not supposed to withdraw funds until age 59 1/2. And if you take your money out sooner, you will be slapped with penalties -- and taxes. In most cases, you will be hit with a penalty of 10 percent of the amount you withdraw. On top of that, you will pay taxes at ordinary income-tax rates on your capital gains (the amount your money has grown). That can all add up to a hefty sum. However, you can withdraw the money early and not pay any penalty under certain circumstances. The two main exemptions are for the down payment on a first home and major medical expenses. You may, for example, withdraw up to $10,000 for your down payment without paying a penalty. (This is not a loan. Your account simply becomes $10,000 smaller.) If you have lost income because of a disability, you may also qualify for a penalty-free withdrawal. If you have questions about specific situations, you can get detailed information from the IRS. Borrower Beware You definitely do not want to borrow from your tax-deferred retirement plan to buy a car or to pay for an education. Why? Because there are cheaper ways to get this money. For a car, the interest on a loan from a dealer is lower than the taxes and penalties for borrowing from your 401(k). The same goes for student loans, which charge a pretty reasonable average interest rate of about 8.25 percent. What is more, during the first five years that you repay an education loan, the interest may be tax-deductible up to $2,000 a year. (That break is for single people with adjusted gross incomes up to $40,000, and $60,000 for couples' income filed jointly.) No Loans, Please Depending on the rules of your company's plan, you may be allowed to take out a loan from your 401(k) account. But "borrowing" from a 401(k) to pay off credit card debt is a bad idea. Credit card debt is unnerving, because it compounds, growing larger and more devastating with each passing day. If you take a loan from your 401(k) to pay off your debt, you are required to repay the loan over a five-year period. But think about this: If you lose or leave your job, you may have to repay the amount immediately to avoid having it treated as a withdrawal -- in which case, you'd owe taxes on it plus a 10 percent penalty. And if you cannot pay off your debts now, what makes you think you can pay off another debt later? In the case of a loan from a 401(k), it is likely you will not get it paid off in time and will not only have to pay the penalties but will have lost the income growth on the money that would have occurred in the meantime. In most cases, it is a far better idea to cut up your cards and set up a plan to repay your creditors. By far the best reason not to touch your retirement account is to remember that you will probably live a long life. No matter what you tell yourself, it is virtually impossible to rebuild your retirement savings. Do not make the mistake of destroying one of the few financial sure things that you do have. 7 Steps to Get Debt Under Control Step 1: Make a list of what you owe. List your debts in order, starting with the largest balance. Next to the amount list the minimum monthly payment and the interest rate you are paying. Step 2: Prioritize your repayments. If you have one or two small balances, you might want to apply extra money to pay them off, while continuing the mimimums on the cards with the larger balances. Or you may want to pay off the card with the largest interest rate first. Step 3: Eliminate credit cards and don't roll over balances.When you pay off a card, notify the company that you want to close the account. Don't just stick the card back in your wallet where you will be tempted to use it. Don't roll over balances from card to card. Switching from card to card has drawbacks. Every time you get a new card you're generating an outstanding open line of credit that will appear on your credit report. Other lenders may be unwilling to let you keep rolling balances. And when those tempting introductory rates expire, you could be stuck with huge balances on high rate cards.   Step 4: Get a copy of your credit report. Your credit report is your bill-paying history. Check for errors and contact merchants if you have questions. You are entitled to a free credit report if you have been turned down for a loan or a credit card. Step 5: Make a spending plan. Now is the time to change how you spend money. Track the money that is coming in and going out. Personal finance software such as Quicken or Microsoft Money let you track all your check writing by category and make monthly comparisons of your actual spending to the amount you budgeted. Use a debit card instead of a credit card. You can only use the card if you have the money in the account to cover it. Step 6: Be careful about the equity in your home. In the past few years, Americans have withdrawn billions of dollars worth of equity in their homes. But there are dangers in home equity loans. Frequently the money is used to pay down credit cards, which are then charged up again. Home values to rise but there is no guarantee that it will continue in the area where you live. Step 7: Get help. If you feel that your credit has gotten out of your control contact a professional for help. Be careful to avoid companies that want a fee for their services or money up front. Seek out non-profit credit counseling services such as Consumer Credit Counseling Services. 10 Tips for Communicating with Your Credit Card Company by Dr. Barbara O'Neill You know how health problems generally get worse when you ignore them? The same thing happens with credit-card debt. The sooner you contact creditors and work out a mutually agreeable payment plan, the easier it is to get relief. Most creditors will negotiate with people who are having trouble paying bills. These negotiations can result in reduced payments, waived late fees and extended due dates. It is important to talk to creditors as soon as you have financial difficulty, however, not after you've started to receive calls or letters demanding payment. The longer you procrastinate and pretend that a debt problem will go away, the less cooperative creditors are likely to be. Here are 10 tips for communicating with creditors: 1. Call creditors as soon as you realize you can't pay your bills. Explain the situation -- often it's divorce, disability or unemployment -- that is causing financial difficulty. 2. Explain any encouraging financial developments, such as a pending divorce settlement, disability benefits or a new job. Creditors may be more inclined to work with you if you'll have future income. 3. Propose an affordable alternate payment plan -- for example, half of the required minimum payment for three months with no late fees. 4. Keep a log of the dates and times of phone calls to creditors, the name of the customer service representative you talked with and terms of the agreement. 5. Follow up calls with a letter that restates the agreed-upon terms. Send the letter by certified mail with a return receipt requested and include the following information: First paragraph: Account number and current interest rate and required payment. Second paragraph: Cause of financial difficulty (brief description). Third paragraph: Specific reduced payment proposal (such as, "We request that you accept $50 a month through June, report our account as current, and waive any penalties."). Fourth paragraph: Request for a response, stating that you will assume the creditor agrees to the terms unless you hear otherwise. Contact information: Address, daytime and evening phone numbers and email address. 6. Resist pressure to pay more than you can afford. Neither you nor the creditor will benefit from an agreement that is doomed from the start. 7. Request that creditors remove negative information, such as late payments, and re-age your account. (That means that it is reported positively as long as negotiated payments are made.) 8. If creditors resist your efforts to negotiate a reduced payment, call a Consumer Credit Counseling Service office. Often, creditors waive late fees and reduce minimum payments for people receiving counseling. For more information about credit counseling, call 1-800-388-2227 or visit the National Foundation for Credit Counseling online . 9. Keep creditors informed about continuing changes in your financial situation, such as prolonged illness or prolonged unemployment. If necessary, negotiate another extended repayment plan. 10. When all else fails, send creditors a small monthly payment, even if it is only $5 or $10. This shows that you're not ignoring your debts, and you'll avoid those computer-generated letters that automatically get mailed when no payment is made.