Sallie Mae states that about nine out of ten college students rely on credit cards to cover basic expenses, and that the average student graduates with about $8,000 in credit card bills. This can't be a healthy thing. In Congress, a movement is now gaining momentum that would reform credit card practices. The Credit Card Holder Bill of Rights, would end arbitrary interest rate hikes, and other deceptive practices used by banks to ensnare consumers looking to buy now and pay later.
Credit cards are the direct cause of about one million personal bankruptcies each year. If you have an over abundance of debt, the best way for you to consolidate credit card debt might be to take out a debt consolidation loan from your bank. Banks and other institutions credit unions generally offer reasonable consolidation loans to help people eliminate credit card debt quickly an easily. This worked great for people during the past 15 to 20 years, but alas for many debt consolidation did nothing but create a lot of available credit for people who once again used their plastic to finance their lifestyles, and this pushed their total indebtedness up even more. For some people debt consolidation was not the answer, it just staved off the inevitable. Eventually, the equity in their homes became depleted and the cycle had to come to an end. When you have falling real estate prices like we have now, the process can terminate faster.
What this means is that if you consider taking out a debt consolidation loan, then you need to strongly consider terminating some of your credit card accounts. If you do not there is the risk that you will run up your plastic debt once again, because human nature being what it is, available credit tends to become used. If you end up refinancing credit card debt with more and more mortgage debt, then the value of debt consolidation is all but lost on you.
Currently, many card issuers reserve the right to increase the interest rate at any time, for any reason!
One thing about consolidation loans is that the payments are very large as compared to credit card payments which can be as low as 2% of the current balance. The reason that banks do this is to encourage their customers to spend and borrow more which generates more profits for them. Having very low payments gives borrowers a false sense of security because they think that they are able to handle such relatively small monthly payments quite easily. What they don't take into account is that these small credit card payments do not reduce the credit balance very much, therefore a borrower can be expected to be in debt for the next 30 years if they only make the minimum payment. If you think about it, 30 years is a much longer period of time than one can expect the consumer goods they are buying to last.
Retroactive rate increases on existing balances can occur if you are more than 30 days late on a payment or if you fail to comply with a debt workout agreement.
So, a wise consumer will make more than the minimum payment each month, and they should seriously consider paying down as much as they can each month. They should explore every option that they have in connection with eliminating the debt altogether through the use of debt consolidation products, preferably offered by their local credit union which will offer them the most sympathetic terms. You should make sure you know what you’re getting into. Most times you may not need to consolidate all of your debt and just focus on individual accounts. So you should have a good plan first before making any moves.
The more that you pay down on your credit card debt the stronger you are going to be and the better off you look in the eyes of a lender or potential employer. What you do want to avoid at all costs is the state of being looked at as a potential bankruptcy case. Remember, all of your credit card banks have access to all of your credit records including your credit history with other banks. Your accounts can be monitored to determine if you are perceived as a credit risk. If you are, then you can expect to get a notice from your credit card issuer that your interest rate has just gone up. They can do this to you even if you have never missed a payment with that bank. All they need is a reason to believe that you might put them at risk in the future. If this happens to you, it will have the effect of increasing your montly payment, and putting off into the future the day that you have paid off on that account.
If you take a temporary second job, or if you start your own part-time home based business, and you dedicate your earnings to paying down your consumer debt, then you are going to be very far ahead of millions of other Americans who just let things go. Many Americans are just a few paychecks away from insolvency, in this position they are financially very vulnerable, and they might not know it. Each month the labor market is shrinking by hundreds of thousands of jobs. Many of these folks are normal people who hold onto tens of thousands of dollars in credit card debt which can take decades to pay off in they are making the minimum payments.
Your best solution? Understand what you are up against. Form a plan, and go over every option available to you then stick to your plan. Across time you will eventually work your way out of debt and push yourself closer to financial independence.
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