Credit Card Debt Solutions

Exploring Issues in and Policy Solutions for Credit Card Markets

During the last three decades, credit cards have transformed the American economy. They have revolutionized the daily mechanisms for payment and borrowing, and in the process, have contributed to the mass consumerism that distinguishes American culture and supports the health of our economy. The days of the “one credit card family” are a thing of the past, with some 1.5 billion cards in circulation today—five for every American man, woman, and child.

Not surprisingly, the rapid growth of the credit card market has been coupled with a dramatic rise in consumer debt (as of September 2006, credit card debt in the U.S. totaled 7 billion) and record profits for the industry. This relationship raises some important questions. For example, why are credit cards so much more common in America than in Japan and the United Kingdom? Why do credit card companies continue to issue cards to customers who are such bad credit risks? What aspects of credit cards most often lead consumers into debt traps? What specifically can policymakers do to solve these problems, and are these solutions politically realistic?

As part of the Center’s ongoing efforts to highlight and address consumer debt issues as a key component of our Economic Mobility Program, CAP assembled a distinguished group of experts who discussed these questions and the policy options for moving forward. First, Sen. Carl Levin of Michigan who commissioned the recently released GAO report entitled “Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers” delivered opening remarks. This was followed by a panel discussion with Ronald Mann, the author of the book, Charging Ahead: The Growth and Regulation of Payment Card Markets, and David Wood, Director of the a for mentioned GAO report on credit cards. Also, the Center’s Director of the Economic Mobility Program, Derek Douglas, discussed a Center report regarding a safety rating system for credit cards.

Improving your financial status and becoming free of debt usually only requires practicality on your part. When you learn to become responsible and practical in your use of credit cards, then you would not have had immense debt problems to begin with. However, you can apply the same level of practicality when it comes to paying off or settling debts.

A few companies offer debt elimination programs but you need not jump right into it. You need to consider whether you will end up paying more than you could afford. However, if it saves you time and stress while also reducing the interest rate placed on your debts, then it would make great sense. There are steps that you can take yourself to advance toward your effort of becoming free of any credit card debt.

1. Set a specific time frame for your debt elimination.

Before you determine how much you are going to pay for your debt settlement on a monthly basis, you must come up with a specific time period first. Say for example, you are paying the minimum monthly payment for your debts, which means that you would end up paying your debt for another 5 or 10 years. If you want to shorten the payment period, then you can opt increasing your monthly payments if you do not want to extend your payment period.

2. Be flexible with your debt elimination campaign.

In the middle of paying off your debts, it is not unlikely that some people with encounter financial emergencies. Therefore, it is best to opt for a credit company that allow flexibility or changes in your payment options when these cases should arise. Find a flexible debt payment plan that make room for such changes.

3. Determine your source of cash for purposes outside debt settlement.

There are a few credit company that unable you to have access to your own money during emergency cases. Therefore, make this an important determiner when you look for a debt relief program. When you encounter financial emergencies, the inaccessibility of ready cash bring about more financial stress. Look for a debt settlement plan that will have extra funds available when such emergencies occur in the middle of working towards your goal to eliminate credit card debt.

4. Evaluate its impact on your credit rating.

There are a few debt settlement methods that can impact your credit rating, so you have to find one that will help eliminate any of your existing credit card debts without necessarily hurting your credit status. If there are any negative marks that could tend to pull down your FICO score, look for other alternatives that could make your FICO score quickly increase. Whether it is making on-time payments or paying double the minimum monthly payments, you need to talk with your credit company to not just free yourself of any debts but also to boost your credit rating.

5. Look into associated fees and charges.

Although some credit card debt elimination programs are offered for free, most are charged service. It is therefore important that you understand how much such services cost before you commit on your involvement with them. Some of the most common fees are upfront fees or attorney fees and some other processing charges. If there are any hidden fees, try to talk them out. The idea here is obvious: you are trying to lift off any financial burden and having your credit company charge you with huge amounts would not help at all.

Learning how to work your way around such negotiations involved with settling off credit card debts could help you be debt-free and regain better control over your finances.