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Dallas Consumer Debt Ranks First In The Average Debt Per City

rescue drowning in debtIt seems that the consumer debt problem of Americans is far from being over. While the government is busy providing us with reports about how the job market is improving, the housing market is recovering and people are more confident about their finances. But while these may be true, it does not diminish the fact that our level of debt is still increasing.

Some economists say that the increasing debt amount is a positive indication for the economy. After all, nobody with shaky financial conditions will borrow money if they know it would be tough to pay it back. The only time that this will happen is through credit cards and that is because the consumer has no other choice. This was a popular scenario when the Great Recession happened. Consumers had to rely on their credit cards to help buy basic commodities because they did not have the cash on hand to make the purchase.

While things are not as bad as before, it cannot be said that we have fully recovered. In fact, a recent analysis from Experian provided us a glimpse of the debt situation in each city in the country. According to their report, Dallas leads among the cities with the highest debt level.

Dallas is first in the list of cities with the highest average debt

The data from this analysis can be seen in a press released published on Experian.com. This credit bureau released the latest study on Credit Trends and it ranked the different cities according to their average consumer debt.

The clear winner (or should we say loser), is the city of Dallas. According to the data, this city topped the list of the 20 major US cities. The city has an average of $28,240. This indicated a 7.8% increase in the debt amount since 2010. The city is also reported to have an average of 648 credit score – from a Vantage Score range of 300 to 850.

The city is closely followed Houston with a debt of $28,105 and the same average credit score of 648. The top 5 cities with the highest consume debt level is rounded up by Washington DC ($27,668 and credit score of 674), Seattle ($27,279 and credit score of 679), and Baltimore ($27,271 and credit score of 662).

The city with the least amount of debt, surprisingly, is Detroit. If you remember, this was the city that declared bankruptcy last year. The consumers in this city have an average debt of $23,604 and a credit score of 667. This city is reported to have decreased their debt level by 7.1% since 2010.

These findings give us a couple of insights about managing your credit and finances despite the economic condition of the city you are living in.

  • The financial troubles of the economy in general make people more responsible in their credit accounts. Time.com pointed out that of all the cities, Detroit is the only one that decreased their borrowing. This might have been understandable as people got scared of the city’s financial situation. If you live in a city that just declared bankruptcy, you will not feel too confident about increasing your credit. Although your personal finances may seem strong, you will hold on to that and will not compromise it for fear that the economy around you will collapse.
  • The high cost of living does not make consumers more prone to debt. The Time article pointed out that two of the most costly cities to live in, New York and Boston, place 4th and 5th when you rank the debt level from lowest to highest. Boston has a high credit score of 694 while New York have 678. That means living in a city that is known to have a high cost of living does not necessarily mean you will acquire a lot of debt.
  • A low cost city does not mean you will not have a lot of debt. CreditDonkey.com gave a report about the most frugal cities in the country and guess who was included? Dallas and Houston. The two cities with the most amount of consumer debt rank 10th and 9th in the ranking of cities that has the most potential to make you live frugally. Dallas is reported to have a median monthly housing cost of $1,031 and the average yearly cost of daycare if at $8,323. In Houston, they almost have identical figures with $1,018 as the median housing cost and a daycare annual cost of $8,323. But despite these, the residents of these two cities have racked up the most amount of debt.

Experian revealed that the average consumer debt in the country grew by 5% since 2010. The credit bureau believes that this may not be so bad because banks who are willing to lend money is a sign that the economy is getting stronger. It also means consumers are getting more confident.

That should not be deemed as too bad right?

How to make debt payments easier to implement

It all depends on how you look at it. While economists view a higher consumer debt as a sign of a stronger economy, it does not bode well for the average American. Remember that the Great Recession was so bad because of our excessive borrowing. It is perceived to be one of the most damaging of our bad spending habits. While borrowing may show that our consumerist society is improving, it does not make your personal wealth a lot better.

People from Dallas have to wake up and start doing something about their debts. It is not easy to get out of debt but it is also not impossible. If you are a resident of Dallas and you see that your debt amount if beyond the average of $28,240, then you need to take a look at the following tips to pay off your debt.

  • Know your debts. Compute just how much you owe – both on revolving and non-revolving debts. In most cases, the revolving debts are the accounts that you can make bigger payments so you can get out of it faster. Look at all your debts and see how much you still owe and how long it will take you to pay everything off if you continue paying just the minimum amount.
  • Analyze your financial resources and expenses. Next is looking at your finances. How much income are you getting a month? Is it enough to cover all your basic expenses? Do you have extra at the end of the month to help you bloat your current debt payments?
  • Make a plan. Once you have these details, you may want to make a debt payment plan that will allow you to make more progressive contributions towards your balance. Check how much you can allot towards your debts and what expenses you can sacrifice in the process. With the new payment plan, how long will it take you to pay off your different credit accounts? There are different methods in paying off your debts and here are two options that Money Talks News suggests for credit cards.

  • Check your emergency fund. Before you implement your debt payment plan, check your emergency fund first. Do you have enough? If you have zero, split your extra money so you can make contributions to both your debt payments and your emergency fund. When you have enough to cover at least a month worth of expenses, you can stop growing your emergency fund and concentrate on your expenses.
  • Grow your extra money. If you do not have any extra money or even if you do, you may want to look into ways that you can grow that further. The more extra money that you have, the bigger contributions you can make towards your debts and the faster you can get out of them. You can grow your extra money by either increasing your income or decreasing your expenses. Or you can combine both.
  • Live on a budget. It helps if you incorporate your debt payments into your monthly budget. That way, the amount allotted for your debt payments will not be accidentally used on something else. This will also help you check if your payment plan is realistic.
  • Build a support system. Debt repayment is not easy but it will be if you have other people supporting you. It might be embarrassing but the support and encouragement that you will get can be very rewarding. Bring your family on board. You can even encourage the whole family to save while you are at it.
  • Stop accumulating more debt. Finally, discipline yourself and stop taking in more debt. If you cannot stop, then it will be very difficult for you to really solve your debt situation.

4 Step Process Of Closing Your Credit Card Properly

cutting a credit cardAre you thinking about closing your credit card? While managing multiple credit cards without ending in debt is tough, it is not impossible to do so. But some people have chosen to close off some of their cards anyway so they can get rid of the temptation to spend them.

Our experiences during the Great Recession showed that in times of a financial crisis, consumers usually rely on credit cards to buy their basic needs. Without cash, this is their last resort. We justify that funding basic needs like food is important but using your credit cards to do that gives a somewhat temporary relief.

It is true that closing your credit card is not really necessary as long as you know how to use it but in a nation that is known to be great spenders, is proper credit card use something that we can really live up to?

Follow these 4 steps when closing credit accounts

If you want to play it safe, then go ahead and close your credit card account – or at least some of them.

But how do you go about closing your credit card properly? Do not be too quick to call your creditor and ask them to close your card. You should also keep yourself from just ignoring the card and not using them. While they will be cancelled eventually because of inactivity, come credit cards may have charged you with annual fees that could accumulate if you do not pay them off.

Given that scenario, here are the 4 steps that you need to follow when closing your credit card accounts.

  1. Pay off the balance first. Credit cards can affect your credit score especially when you close the accounts that you still owe money to. This is because your credit utilization will suffer. Let us assume you have 3 cards with balance and limit of: $1,500/$3,000, $1,000/$5,000, and $750/$4,000. That means your total balance to limit is $3,250/$12,000. That means your credit utilization is only 27% – a healthy percentage compared to the ideal of 30%. However, if you close the first card with the $3,000 limit without paying the balance first, your balance to limit will now become $3,250/$9,000. That means your credit utilization will now be 32%. That can hurt your credit score. You need to pay off credit card debt first before you go ahead and cut off your credit account.
  2. Call your creditor through the customer service. Once you have paid off your balance, you can now call the customer service of your credit card issuer. In most cases, you can find the number at the back of your credit card. Let them know that you intend on closing your credit card and you can even tell them the reasons why. Be prepared to engage in some sales talk as these customer service representatives will try to discourage you from closing your account. But if you have crunched the numbers and you believe that this card is not important, then close it off. Make the request to close it and take careful note of the date and time of your request. You may want to get the reference number of the call and the name of the agent you are talking to.
  3. Make a letter and send it to the creditor with a return receipt request. This is to ensure that the creditor knows of your request and will act on it accordingly. Include in the letter your name, contact details and the last 4 digits of your credit card number (put an x on the rest and show only the last 4 digits). Write the details of your call too for confirmation. Use the certified mail system. Keep a copy of the letter and monitor the return receipt.
  4. Monitor your credit report. You should see the change in your credit report so make sure you monitor it for the next few months. After you have made your request, wait for a month or so to look at your credit report. Your report should reflect it already. This will also help you check how this action of yours affected your credit score.

Americans and their credit card use

According to an infographic published on InfographicsCreator.com, the average credit cardholder owns 4.4 cards. In fact, 10% of consumers have more than 10 credit cards. While 54% of cardholders have made it a habit to pay their balance in full every month, this is still dangerous because you are still more likely to overspend your monthly budget. According to the infographic, credit card purchases are expected to rise by 33% by 2017.

This is a huge growth considering our current credit card balance of $872 billion – which is according to data found on NerdWallet.com. The average credit card debt per household is $7,221 – this includes all households. But if you only include the households that have actual indebted records, the average goes up to $15,480.

While there are some reports that a lot of Americans have shown positive changes in the way they manage their credit cards, the debt of consumers continue to rise.

You may want to choose only the few cards that you will retain in your wallet. If you are one of the people who own 10 or more credit cards, you may want to think about closing some of them.

Credit cards you should avoid closing

But take some time to choose which of your cards you will close. There are certain cards that you should refrain from closing and here are 5 of them.

  • The cards with balance. We have identified the reason why you need to pay off your credit card debt. It will affect your credit score. Not only that, creditors will ask you to pay your debt immediately. You need to be prepared to do that.
  • The only card that has available credit. If you have to choose among the cards that you want to close, you should also avoid closing your credit card with the only available credit. If you have maxed out your cards and this is the only card you have that is not up to the limit, then do not close it. Doing so will affect your credit score. In fact, do not close any card just yet.
  • The only card that you have. If you only have one credit card, do not close it off. You will need this to maintain a good credit score. Credit card debt elimination does not require you to have zero credit cards. If you know how to use it properly, you do not have to worry about debt at all.
  • The oldest credit card. This will also affect your credit score – especially your credit history. A shorter credit history might lower your score unnecessarily. If you have to choose a card, pick the new ones. But of course, this will depend on which cards are really useful and beneficial to your spending lifestyle.
  • The cards with the best terms. While you need to keep the older cards, make sure you analyze your spending habits first. If your new card is better when it comes to complimenting your spending lifestyle, then it is better to close the older account that more inappropriate for your purchases.

Here is a video of Suze Orman as she discusses when closing your credit card is okay and when it is not.

How To Improve Your Credit Score Without Making Yourself Crazy

how debt relief affects credit scoreYou do know what your credit score is, right? If not, now would be a good time to learn what it is. The reason for this is simple. Your credit score rules your credit life. If you have a poor credit score you may not be able to rent an apartment, buy a house or a car or get new credit cards. You may have to pay more for your home and auto insurance and for any loan you are able to get.

So what the heck is a credit score?

For many years the only way a lender could determine whether or not to loan you money was to sit down and plow through your credit reports from the three credit reporting bureaus. As you might imagine this was a very time-consuming process. The people at what was then called Fair Isaac Corporation (now known as FICO) felt there had to be a better answer. Its solution was to turn all of those credit reports into a single three-digit number – your credit score. How FICO pulled this off is based on an algorithm that’s known only to it. If you don’t know your FICO score you can get it at www.myfico.com for $19.95 or for free if you take out a free trial subscription to its Score Watch program. It’s also possible to get a version of your credit score free – though it won’t be your true FICO score – from the three credit reporting bureaus or from independent websites such as CreditKarma.com or CreditSesame.com. If you have a Discover card you’re probably already getting your credit score each month along with your statement.

What lenders look for

When a potential lender checks your credit score it generally views it in ranges as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score

If you have a credit score lower than 580 you need to improve it and you can – by following these tips. And they’re easy enough that following them won’t make you crazy.

Pay your debts on time

On the face of it this may seem too simple but if you create an history of consistently making your payments on time, this will boost your credit score. If you have a car payment, credit card balances, a mortgage or student loans make sure you don’t miss your payments. If you do, your account could be turned over to a collection agency and trust us, you don’t want this to happen. A debt collector can be your worst nightmare as many of them are so tenacious they make a pit bull look like a kitten in comparison

Pay off your credit cards

Here’s another simple thing you could do and that’s pay off your credit cards. If possible, pay off your full balance or balances and then go a month without using your cards. This stops you from having to pay interest, saves you money and will, of course, increase your credit score.

Fix errors

To err is human but to fix mistakes in your credit reports is divine. One recent study revealed that nearly 25% of us have errors in our credit reports that could be affecting our credit scores. You need to get your three credit reports from the credit reporting agencies – Experian, Equifax and TransUnion and go over them with a fine tooth comb. If you find errors you will need to write a letter disputing them to the appropriate credit bureau. Your letter should identify each of the items in your report that you are disputing. You will need to include whatever documentation you have that proves your case and explain why you are disputing the information. Make sure you also request that the erroneous item or items be removed or corrected. It’s best to send your letter by certified mail, return receipt requested, so you can prove that the credit-reporting agency received it. Be sure to keep a copy of your letter and your documentation.

Moderation in all things

This phrase was attributed by the Greek philosopher Aristotle to Chilo, one of ancient Greece’s Seven Sages. It basically means nothing in excess and this is especially true when it comes to credit cards. Most experts say that you should only use 20% or less of your available credit. In other words, if you have credit cards with a total credit limit of $1000, you should keep your balances under $200, which will be very good for your score.

Up your credit limit

If that 20% doesn’t give you enough credit to satisfy your monthly needs, contact your credit card issuer and ask it to increase your limit. This will keep your usage ratio low while allowing you to spend more. As an alternate to this, you could keep smaller balances on multiple cards to maintain the right ratio.

Resist the impulse to open more accounts

One of the problems with credit cards is that it is simply too easy to open new accounts. Just about every time you check out at a store you’ll be offered the opportunity to get a new card. Also, the credit card issuers are offering more and more incentives to open their cards such as cash back and airline mileage. But each time you apply for a credit card it dings your credit score by at least two points. Plus, the more credit cards you have the more tempted you might be to use them.

Adult WomanHang on to your older cards

Here’s a tip that’s pretty darn simple. Just hang on to those older cards. If you have been making your payments on them, this is a good indicator that you are a responsible user of credit. In the event you feel you have too many credit cards and need to close a few accounts, close the newest ones first. Also, make sure you use those older cards occasionally so that your account will look active.

Time will go by

If you were forced to declare bankruptcy because of out-of-control spending or bad luck such as an unexpected illness or loss of a job, you will just need to let time pass. It can take seven or even 10 years for that bankruptcy to drop off your credit report. The good news is that if you let time pass and that bankruptcy drops off your report, your credit score will improve significantly.

How about a secured card?

In the event you are waiting for something to drop off your credit report such as a bankruptcy or an item that went into default, you might get a secured credit card. This is where you make a cash deposit to “secure” the card. You can then use it until you’ve depleted your deposit at which time you can either add more money or simply throw away the card. But the important thing is that if you use it wisely, it will help you rebuild your credit.

The net/net

The bottom line is that it if you follow the simple tips you’ve read in this article, you can increase your credit score and have better credit without making yourself crazy

7 Credit Card Sins That Will Ruin Your Financial Wealth

hand holding credit cardsYou do not want credit card debt in your future. It can cripple your limited finances when you need it the most. It is not something that you should leave out of control. You have to start acting on it now because if you let it accumulate, it can become a very big problem, not just for you but for the rest of your family as well.

What puts you in debt are the credit card sins that you are making. It is not really the ownership of the card that puts you in trouble. It is how you choose to use it. There are people who have owned credit cards for years but have never had any problems with debt. That is because they have learned how to use it well.

The good news is, a survey done by Gallup.com revealed that Americans are starting to get wiser when it comes to credit card use. In 2008, only 43% said that they always pay the full amount of their credit card balance. In 2014, it went up to 48%. That means people are still using their cards but they are no longer keeping balances in their cards. That eliminates the debt and allows the cardholder to maintain a good credit score since they are using credit responsibly.

7 credit card holder mistakes you should avoid

It is not complicated to manage your credit card debt but it does require discipline and self control. If you do not have it, then you will not be able to avoid committing the credit card sins that will eventually ruin your financial wealth.

But what exactly are these sins that you should avoid? Here are 7 of the most common mistakes that credit cardholders make.

  1. Making late payments on your credit card due. This is the easiest sin to commit – paying your credit card late. It is also the most common. You need to make sure that you can pay your credit card dues on time because if not, you will be given late penalty charges. Not only that, it will cause you to carry over your balance to the next billing cycle. That will end up bloating your current balance because of the finance charges that will be added to it. That being said, it is a must that you pay your credit card debts on time – no excuses. In case you know that you will not make it in time for your due date, call your credit card issuer immediately. They can help set up a temporary extension if your reason for making a late payment is valid. Just do not make a habit out of it.
  2. Using your credit card to access cash advances. The second of the credit card sins that you need to avoid is using your credit card to make cash advances. This is a big no-no. If you find your credit card interest rate to be high, then the cash advance rates of your card might just give you a heart attack. It is so high that it is usually not worth it to use as a solution to get out of a tight financial situation.
  3. Maxing out your credit card limit. Another mistake that you can commit as a cardholder is maxing out the limit on your credit card. Not only will it be hard to pay off the balance immediately, it will also affect your credit score. It will ruin your credit utilization – which affects around 30% of your credit score. You want to make sure that your debt amount is kept low so you will not be in danger of falling behind on your debt payments.
  4. Failing to monitor your credit report. A lot of people do not understand how this can be one of the credit card sins. They do not pay attention to their credit report because they feel that it is unnecessary. Well that is where you are wrong. According to the statistics found on the website of the National Criminal Justice Reference Service, NCJRS.gov, 17% of the consumer complaints received in 2013 is caused by credit card fraud. One of the most effective ways to recognize identity theft is by monitoring your credit report. You can check out any new accounts opened under your name. You can also monitor your debt amount if it is reflecting purchases that you did not make. You will be aware of these if you only monitor your credit report regularly.
  5. Spending on credit when feeling an emotional high. A lot of use don’t realize that this is part of the credit card sins that you need to avoid. If you are experiencing some sort of emotional high, it is not advisable that you go shopping – especially when you plan on using your credit card. If you are bursting with happiness and you want to reward yourself, use cash instead. The same is true when you are stressed or distraught. When you use cash, you can limit what you will purchase. During these shopping escapades, leave your credit cards behind to avoid overspending.
  6. Applying for new cards to get rewards. While the rewards are also important aspects of your credit card application, make sure that your primary reason for getting the card is borne out of necessity. Do not apply for the card if you do not plan on using it.
  7. Ignoring the fine prints. Lastly, you need to stop ignoring the fine prints. Admittedly, they are tough to comprehend but if you have questions, you need to ask the customer service. Do not skip reading this before you apply for a card. It can lead to a lot of the credit card sins we mentioned here. You do not want to violate any of the credit card rules and be penalized for it. Be in the know and you will not have to be charged for violating the rules of credit card ownership.

Tips to keep yourself from negative credit card consequences

If you want to avoid committing credit card sins, it is a must that you learn how to use a credit card responsibly. Here are some of the tips that you can use.

  • Budget what you will spend on your card. It is important that you include in your budget what you will spend on your card so you know what your limit is. The reason why we accumulate debt is because we fail to plan our credit spending. When you include it in your budget, you will know just how much you are allowed to spend and you can stop once you reach that.
  • Pay the amount before the grace period expires. The grace period is the time between your purchase and the due date of the billing where it is included. When you pay the balance within this period, you will not be imposed with any credit card charges or interest.
  • Maximize the rewards. We have mentioned that the rewards on your cards is important but it should not be the reason to get a new card. But if you have a card that you are always using, try to plan your spending so it maximizes any freebies or cash back rewards. That will add to your savings.
  • Be in the know. This is very important. Learn about the laws protecting you as a credit card user. You should also be aware of any recent developments about credit cards. For instance, there is the campaign to use smart credit cards to avoid or lessen the threat of identity theft. EWeek.com reported that 37% of survey respondents about these smart credit cards said that they prefer chip and PIN cards over signing signatures. You need to be aware of these developments so you can choose the card that you will have. You can call your creditor to discuss your options to change into a more secure card.

In the end, the key to avoid credit card sins is to understand every aspect of the card. Be wise and responsible and you should be free from debt for the rest of your life.

The Dos and Don’t of Loan Consolidation

Stamp Shows Consolidated Loan approvedIf you’ve watched TV for more than an hour or spent any time at all on the Internet you’ve undoubtedly seen all those ads from those companies that would just love to help you consolidate your debts to “cut your payments in half,” “reduce your interest payments”, and “help you become debt free.” This can all seem very tempting especially if you feel your billfold is hemorrhaging money due to your debts. The fact is combining all of your loans or credit card debts into a new loan with a lower interest rate and better payments can make perfect sense. Sadly enough, it doesn’t always work out like that. The fact is that many people who consolidate their debts end up paying more than they would have otherwise. An alarming number of borrowers that get home equity loans end up losing their houses. In addition, many of the so-called “consolidation” programs are not really loans at all. Plus, debt consolidation has a sort of bad reputation and in some cases rightfully so. Still, if you pay attention to these dos and don’ts you might be able to benefit a lot from consolidation.

Do get your credit report and FICO score

Whether you’re aware of this or not, your ability to get a loan and your interest rate will depend on your credit reports and your FICO score.

There are three credit-reporting bureaus – Experian, Equifax and TransUnion. They are required by law to provide you with a free copy of your credit report once a year. You can get your report from these bureaus one at a time or all together on the site www.annualcreditreport.com. The reason you’ll want to get your reports is because they could contain errors that are adversely affecting your credit score. You need to go over each report very carefully. If you do find errors, you’ll need to write the appropriate credit bureau and dispute the items.

Your credit score is a three-digit number that was created by the company now called FICO but until a few years ago was known as Fair Isaac Corporation. Your FICO score is a mathematical representation of your credit reports. It’s created using an algorithm that only FICO understands. You can get your score at www.myfico.com, from one of the three credit reporting agencies or from websites such as Creditkarma.com. If you have a Discover card you’re probably getting your credit score every month along with your statement. Lenders generally look at credit scores in ranges as follows:

  • Between 300 and 499 – Bad credit score
  • Between 500 and 579 – Poor credit score
  • Between 580 and 619 – Low credit score
  • Between 620 and 679 – Average or OK score
  • Between 680 and 699 – Good credit score
  • Between 700 and 850 – Very good or excellent credit score

If you find you have a credit score of 680 or above, a consolidation loan might be a good option.

Don’t fail to investigate other options

Before you get yourself tied up in a consolidation loan with a term of seven or even 10 years, be sure to check out your other options. If your goal is to save money and you’re not in a really bad financial situation, just pay off your debts faster by prioritizing them. This is called snowballing your debts. It is where you concentrate on paying as much as you can each month on the debt with the highest rate while making sure you continue to make the minimum payments on your other debts. This has helped many people become debt free within two years or less.

Do contact your credit card company

If you have relatively good credit call your credit card company and see if you can negotiate a better interest rate. In the event that they refuse to give you a lower rate, consider transferring your balances to a credit card with a lower long-term rate.

Don’t do a balance transfer without knowing all the facts

You could transfer your high-interest credit card debts to a 0% interest credit card. This is a card where you pay no interest during an introductory rate that can be anywhere from six months to 18 months, which gives you a sort of time out during which you could concentrate on paying off your balance. If you don’t get your balance paid off before your introductory period ends, you’ll have to start paying on it and your interest rate will likely skyrocket to 19% or higher.

Husband and wife happily talking to another personDo try a credit-counseling agency

There is probably a reputable credit-counseling agency where you live. If so, it should be able to provide you with either free or low-cost advice on how to manage your debt. You will be assigned a counselor that will review your finances, help you prepare a budget and provide you with tips for getting your finances under control.

Don’t sign up for a debt management plan

Your credit counselor might try to talk you into a debt management plan. Don’t agree to this without understanding it could take you as long as five years to complete it and you might have to give up all your credit cards.

Do talk with your mortgage holder

Reputable mortgage companies will usually work with you if you’re having a temporary problem. As soon as you see that you’re having trouble, call the company. It may be willing to temporarily suspend your payments, accept reduced payments for a period of time or let you pay interest only. Alternately, you might extend your term or the amount of time required for repayment, which would reduce your payments.

However, your best bet might be to totally refinance the loan. For example, there is a federal program called HARP (Home Affordable Refinance Program) where you could refinance and lower your payments even if you owe more on your house than it’s worth.

Don’t borrow from your life insurance

If you have a whole life policy, you could borrow against its cash value. This is usually a low interest loan that would get you quick cash to pay off your debts. However, there can be tax implications on the money you borrow. Plus, if you don’t repay the loan, the money will be subtracted from the amount your beneficiary receives.

Do try to pay off your debt quickly

One of the downsides of a consolidation loan is that you may have lower monthly payments but your repayment will be spread out over a longer period of time so you’ll be paying more, sometimes a lot more, on a consolidation loan then you would have to otherwise. Figure out your budget and then set the monthly payment on your loan as high as you possibly can. The quicker you pay off that loan the more money you’ll save and the faster you’ll be out of debt.

Don’t get the wrong type of loan

It’s important to understand there are two types of debt consolidation loans – secured and unsecured. Second mortgages, home equity loans and secured lines of credit are secured loans – that is an asset such as your house secures them. These loans usually have lower interest rates than the unsecured ones. In addition, if you get a home equity loan the interest you pay on it will probably be tax deductible. Of course, if you fall behind on a home equity loan, you could end up losing your house.

Unsecured loans can be a better option because you don’t have to risk any assets such as your house. If you have decent credit you should be able to get one of these loans at a good interest rate. But if you have poor credit you may find that you’ll get a low rate only with a secured loan.

Do shop around

Finally, make sure you get quotes from several different lenders and compare the terms and the interest rates very carefully. Your best bet is often your own bank or credit union – especially for personal or unsecured loans. But it’s always a good idea to shop around. When you do this, be sure to get your quotes in writing so you can compare lenders side-by-side. And make sure you understand all the fees associated with the loans as well as their terms and conditions.

6 Common Causes of Credit Card Debt

Multiple credit cards in one handCharging purchases on a credit card has steadily been the most preferred payment  method of consumers lately. About 1.5 billion credit cards in the country are helping fuel this way of life. According to Statisticbrain.com, there are about 176.8 million consumers who has a credit card in their wallet where the average card ownership per person is 3.5. This goes to show the dependency of the US market in credit card purchases.

The expense item is still in the top four debt item in the country. It is in the league of mortgage loans, student loans, and auto loans. In a consumer driven economy, credit cards play a vital role not only in the private lives of its users but the whole economy as well. It increases the purchasing power of the consumer and extends credit for an otherwise impossible purchase.

But there are a few people that despise credit cards because of all the financial trouble they are in at the moment. Some of them were not aware of the impact of credit cards in the credit score, how late charges worked and other details that dragged them down in debt and interest payments. Though there are those that are able to live off a credit card but still manage to maintain their finances in check .

Common Credit Card Problems

It is important to note that any unfavorable details in your credit score might take approximately seven years to repair. This is in stark contrast with how a consumer can do damage on the credit score in a matter of days or weeks. What is easily put on the report will be a very hard and long battle to recover from.

In most cases, the problem lies with the user and not the card. The consumer gets in all sorts of predicament because the usage of the card was not properly observed. Here are some of the top reasons why a person could walk right into a debt trap using a credit card.

Credit card ready

Most consumers are not ready. This is one basic flaw in the system where as young as high school students get access to a credit card. When they get to college, they see credit cards as an endless source of cash. They then come home to mom and dad pleading poverty with a tidy amount of credit card bill.

It is not only students because there are also professionals who are not ready for the added financial responsibility but still get their hands on a shiny new plastic. One basic requirement of owning a credit card is a steady income to pay off the purchases. It is impossible to pay for the charged items without a good and steady source of funds. It could be coming  from an allowance, salary from employment or even returns from investment ventures. You would need to understand budgeting as well for this.

More than you can handle

Most of the consumers started with one credit card. But not all of them stop at just one. A lot of people are taking in a lot more and sometimes go way in over their head. Assigning a specific function to each credit card is a great idea but only if you can be financially mature to handle multiple cards. If not, it is better to stick to one card.

Some consumers assign a specific card for groceries, gas and other items. This is a budgeting tool that allows them to see how much each cost item is being used through the credit card bill. This is useful but requires a lot of restraint and discipline. Restraint from using the credit card just because you feel like it and discipline in using the card for specific purposes only.

Debt overcomes income

As you make purchase using a credit card, you do not see actual money exchange hands. This could be one of the reasons why overspending with the card is a common occurrence. Plus the fact that the money being used to pay for the purchase is borrowed and not actual money of the holder makes it all too easy to spend.

Consumers need to keep tabs on their expenses to know if their salary or any other sources of income is enough to meet the payments once the bill arrives. For some, it is the longest few weeks of their livers from the time the purchase was made up to the time the statement arrives. It is important to know how much you can spend in your card and keep a close eye on your credit limit as well.

Payment dispute

A late payment and non-payment are reported to the credit bureaus by the lender. But if there are any dispute on purchases on the card, it is best to talk to your lender at the soonest possible time. This is to get to the bottom of the issue and be able to investigate the incident. At this point, it is best to keep an open line of communication with your creditor and to not hold any payments due as a sign of retaliation for the error.

Major life change

Credit.com points out that major life changes affects the finances as well. Getting married, expecting a baby, moving houses and other big ticket item purchases can have an effect on the personal finance of the consumer even up to their credit cards. It is best to be able to anticipate and plan your budget around the new chapter in your life and make the credit card to your advantage rather than a liability.

Understanding the fine print

It is ideal that a consumer knows the basic details of his or her credit card. The credit limit, payment due date and interest rate are just some of the items that is needed to be remembered by the person. But there are more details about the credit card that a consumer must understand in order to enjoy the benefits to the fullest.

With a card, it is best to understand how the late fees and other finance charges work on your loan. Knowing this can alert you even before buying an off-budget item. It is a great idea to understand how the point system works and if there are any fees related to transfers of balances into or out of the current one.

Credit card use

Consumers are not asked to splurge on clothes shopping everyday or to totally stop purchases with a credit card. There should be a fine line between the two and the consumer must be able to strike the balance between too much and too little. Though there are fast credit score fixes, a consumer must not rely in this possibility to lose track of credit card spending.

Proper money management, keeping a steady income source and managing credit card expenses are some of the prerequisites for properly handling the plastic. It is a tough job but the rewards are great. Staying away from debt is one of the top reasons why people are trying to be more aware of credit card usage. Debt is already an all too common circumstance for most people but the better handling of various credit tools such as a credit card, then debt will be kept at bay.

3 Very Big Questions (And Answers) About Personal Finances

young woman looking at credit cardPersonal finances are a bit like your health. You need to keep an eye on them just as you need to watch what happens to you physically. If you’re smart you’ll have a physical exam once a year just as you should give your personal finances the occasional checkup. And you probably have questions about your finances just as you have questions about your health. Recent college graduates were surveyed regarding their questions about personal finances and here are the three that came up most often.

Why not have just a debit card?

Since credit cards can be very dangerous why have one? Why not just use a debit card instead? Yes, credit cards can be troublesome. However, they do come with some benefits. If you have a credit card and use it responsibly, this will help your credit score. Second, merchants sometimes require a credit card rather than a debit card. If your identity is stolen, undoing the damage from a stolen credit card can be easier than with a debit card. If you run into a dispute with a merchant, it’s often better to have used a credit card as your credit card issuer will help you settle the dispute. Plus, almost every credit card now comes with rewards that can be beneficial – assuming you don’t go into debt or end up having to pay high interest.

The cons of debit cards

The money comes out of your account immediately when you use a debit card. In comparison, with a credit card you get a short-term free loan and your money stays in the bank earning a return. In fact, with most credit cards you would get at least a 27-day free loan every month. Given today’s historically low interest rates this may not amount to much but interest rates will go up eventually.

Is it better to have no credit or bad credit?

The problem with bad credit is that it’s very hard to fix. If you have bad credit the first thing you must stop running up more debt. You will need to create an emergency account and a budget that will require you to do and buy only what your income will cover. In addition, you will need to pay all your bills on time and in full, and pay down your debt. This includes everything even any accounts you have that were charged off. As you can imagine, this will require a lot of discipline and commitment – no matter why it was that you developed bad credit in the first place. If you have no credit it’s fairly easy to establish good credit. The reason why you want to do this is so that you will have it when you need it to get a home, a new car or for some other major purchase. You need to responsibly handle your savings and checking account and should get a debit card with no over-limit protection and maybe a secured credit card. If you have a secured credit card and use it responsibly then after six months you should be able to get an unsecured car with a low credit limit and no over limit protection. Of course, while you’re doing this you will have to pay all of your bills on time.

Girl looking worriedWhat’s the best way to pay off credit card debts?

The first thing you need to do is create an emergency savings account to make sure that if something happens you don’t fall into more debt. You also need an honest and realistic budget so you can see what you spend your money on and whether it is a wish, a want, a luxury or a convenience that you could do without. Once you have done these things the next step is to get to work and pay off those credit card debts as quickly as you can. There are several schools of thought as to the best way to do this. The financial guru, Dave Ramsey, recommends what he calls the snowball method of paying off credit card debts. What this amounts to putting your debts in order from the one with the lowest balance down to the one with the largest. You then focus all of your efforts on paying off the one with the lowest balance while continuing to make the minimum monthly payments on your other credit card debts. When you get that first debt paid off you will have extra money you can use to pay off the credit card with the next lowest balance and so on. Dave calls this the snowball method because like a snowball rolling downhill you will pick up more and more momentum as you pay off each debt. However there are other financial experts that believe it’s best to put your credit card debts in order from the one with the highest interest rate down to the one with the lowest. You then concentrate on paying off the one with the highest interest rate first as this will save you the most money. Which of these two methods would be best for you? It really boils down to a matter of personal choice. The important thing is to pick one and then stick to it.

How it used to be

Until very recently it was easy to understand how to handle credit cards to keep from having them negatively affect your credit score. All you had to do was… • Make every one of your payments – at least the minimums due – on time every month • Be sure to keep your balances below 30% of your credit cards’ credit limits. Of course, it’s better to have an even lower percentage but the difference that 10% or 20% make to your score is really very minimal when compared to 30%. • Make sure that you apply for a new credit card only when you need it. Your credit score can be negatively affected if you have a lot of recently opened accounts.

A new factor in credit scoring

But now there’s a new factor in credit scoring as the three credit bureaus are now using the amount by which you pay down your cards each month in calculating your score. It’s likely that other bureaus and scoring companies will soon follow suit. What’s the purpose of this? It’s to differentiate between people who pay down their balances in full each month (“transacters”) and people called “revolvers,” who carry forward their balances from one month to the next. The theory behind this is that people who pay off their balances each month are likely to be more credit worthy and so deserve higher scores. A spokesperson for FICO, the company that invented credit scoring, has said that it is still studying the data and hasn’t yet changed its systems. In addition to having invented credit scoring, FICO is the company whose credit scores are used in more than 90% of all lending decisions made in the US.

How this could affect you

If companies in the credit-reference industry and FICO begin to differentiate between “revolvers” and “transacters,” the “revolvers” could see their scores being downgraded even if they always make the minimum or higher payments on their credit cards on time every month. And this could lead to a significant change in how people view their credit cards and there could soon be fewer “revolvers.”

Bad news for the credit card issuers

In turn, this could be bad news for the credit card companies. Would you use your cards to borrow if you knew that this would probably make your home, auto and other loans more expensive? For that matter, the interest that credit card companies garner from those that roll forward their balances every month is an important revenue stream. One of the best-kept secrets of the credit card business is that people that always pay their balances on time are referred to as “deadbeats,” because they generate little or no profit for the credit card companies.

How Credit Card Companies Calculate Your Interest Charges May Totally Surprise You

Hand holding batch of credit cards credit card debtIf you’re like us, you open your monthly credit card statements, note the minimum payments required and maybe the interest you’ve been charged and then file them away until a few days before your payments are due.

Credit cards can be great tools

Credit cards can be great tools when used sensibly, They can be very handy when you want to buy something but don’t have enough cash available to pay for it. If you’re typical your access to capital is limited and a credit card represents one way to get an instant line of credit that won’t have many strings attached. Of course, this doesn’t mean the money you can access with a credit card is free. If you’re not certain as to how credit card companies calculate your interest, you may be paying more money than is really necessary. It’s important that you do a good job of managing your credit card spending and that you know the terms of the agreements you have with your credit card providers.

If you’re average

What you may not be paying much attention to if you’re the average credit card user is how credit card interest actually works. Again, if you’re typical, you simply check out the interest you’ve been charged, maybe wince a bit and then move on. But to really understand your credit card bill you need to know how credit card interest really works.

Calculating your credit card interest

If you’ve ever tried to carefully read your agreement with a credit card company, you might come away with the idea that it was written to be almost impossible to understand. This can be especially true when it comes to how interest is calculated. If you don’t know how your interest is calculated, you could end up spending more than you had intended and with a huge interest penalty. Of course, you can prevent these problems simply by paying off your balances in full and on time every month. Unfortunately, many people cannot do this because they need that line of credit to make larger purchases they can’t pay for in just 30 days.

Most credit card issuers compound interest each day. Compounding your interest means that any interest charges you have that accumulate are added to your principal or the total amount you owe. To compound your interest, most credit card companies divide your annual interest rate by 365. The resulting daily interest is then multiplied by the balance of your loan to get the interest you’re charged daily. This is then added to your daily credit card balance.

It’s not compounded monthly

The mistake that most people make is to believe their interest charges are compounded monthly. But as you have read, this is not true for the majority of credit card issuers. This means that if you owe a large amount of money and don’t understand how interest works, this system of compounding can mean that your debt could spin out of control very quickly.

Here’s an example of what I mean. Let’s assume that you owe $1000 on a credit card with an APR or annual interest rate of 15%. If you divide 15% by 365 days, you’ll see your daily interest is 0.041%. This means if you carry that $1000 balance for just one day, your interest charge will be $.41. Then on day two you’ll be charged that 0.041% on $1000.41. While this may seem kind of insignificant it can become a huge issue if you owe a lot of money. This is the reason why it’s critical that you keep the average balances on your credit cards as low as you possibly can.

When you’re charged interest

A second important question is when will you be charged interest? Unfortunately, the answer to this may not be simple. Many credit cards have introductory offers that give you zero interest for some amount of time – ranging from six to 18 months. As you might guess, if you have a really good credit history you’ll get a longer introductory period. But, of course, nobody will get a 0% interest line of credit forever. After your introductory period expires you’ll be required to begin paying interest on any balance that you carry forward from one month to the next. In most cases, you can pay off your balance at the end of every month and won’t be required to pay any interest. But if you don’t pay off your balance in full, you will start seeing interest charges on your remaining balance.

How your credit card interest rate is determined?

You may understand that your credit card’s APR or interest rate has a big effect on how much you pay in interest each year. But what you might not be aware of is how credit card companies get to that APR. In fact, they use a number of different factors in assigning you an interest rate, including whatever is the prime rate, your credit score, your credit history and any credit card promotions the company is currently offering.

If you’re not familiar with the prime rate it’s based on economic variables tied to the interest rates paid by banks when they borrow from the Federal Reserve on a short-time basis. Generally speaking, the prime rate will be three percentage points higher than the federal rate. This means that when the prime rate goes up banks are required to pay more to borrow from the Federal Reserve and your card’s APR will also will increase – probably by the same amount
If you’re like us to open your monthly credit card statements note the minimum payment card or maybe supercharged file them away until a few days famous
The second factor, your credit score, affects how much you can borrow and your interest rate. As you might guess, if you have a high credit score you will get a lower interest rate. And the inverse is true. If you have a low credit score you will pay a higher interest rate.

How you have paid on credit cards and loans in the past also affects your interest rate. For example, if you were to make a late payment, this will directly affect your interest rate. Finally, a credit card company may be offering a promotion as a way to get new customers. Many of these promotions are introductory offers where, as reported above, you pay low or no interest for some period of time.

As a prudent consumer

If you want to be a sensible and prudent consumer, you need to keep abreast of how credit card interest is calculated and how your relationships with your credit card issuers affect your finances. Make sure to read the fine print in a credit card agreement before you sign up for one and understand all its details. That way you won’t have an unpleasant surprise sometime in the future when a credit card statement roles in and you find you’ve been charged an insanely high amount of interest.

Why a credit card can be better than a debit cardwoman with a laptop and holding a credit card

There are some very good reasons to have a debit card. For one thing, you can’t run up debt on a debit card. These cards are generally tied to your checking or savings account so that if you completely deplete that account, you can no longer use the debit card. However, there are also some reasons why a credit card can be better than a debit card.

The first of these is that you can build up your credit score with a credit card but not a debit card. When you use a credit card sensibly – especially if you pay off the balance on time every month – this will definitely have a positive affect on your credit score. In comparison, what you do with your debit card will have no affect on it.

Budgeting can also be easier with a credit card as all your transactions will show up on your statement at the end of every month. Good budgeting begins with tracking your spending so that you’ll know where your money’s gone. A credit card statement will help you understand this and see those areas where you might be able to reduce your spending.

Third, debit cards do not come with rewards as credit cards do. When you choose a credit card that comes with great rewards such as miles or cash back, this will help you get more bang out of every buck you spend.

Finally, credit cards give you more protection as a consumer than do debit cards. With most cards, your liability is capped at $50 if someone steals your identity or misappropriates your card. While debit cards do offer protection against fraud it could be as many as two months before you get back the money that was stolen.

Consumer Debt Indicates Confidence

happy woman with groceriesConsumer debt is a common experience for most Americans. It is evident in almost every aspect in their lives. It is a companion in almost all major decisions in a consumer’s life. Financing college dreams would most usually equate to taking out federal and private student loans. This would pay for the tuition and other fees to graduate with a degree.

For consumers buying a car, taking out a car loan is just around the corner. It helps them finance the car instead of buying the car in cash. It allows them as well to not tie up their funds in just one property. Buying a home would similarly have the same concept as getting a car. Mortgage loan is one of the most used consumer loan instrument.

From college education to buying a car and owning a house, consumer debt plays a vital role in those major life points. But even in our everyday lives, consumer debt is evident in our use of credit cards. From buying groceries, paying for the monthly bills to dining out with the family, credit card use has been playing a big role in a consumer’s life.

With all these consumer debt, people have been finding themselves deep in debt and putting together a financial routine to tame big debt. But experts are looking at debt in a different light. Oddly enough, some financial experts deem debt as a good indicator of consumer confidence.

Confidence in growing consumer debt

NYtimes.com recently shared an article on how consumer debt is indicating growth in consumer confidence. From the study, consumer debt for the first quarter of 2014 stands at $8.69 trillion. Covering the same quarter last year, this is a 2% increase in debt. And looking further down the timeline, this is the only increase in consumer debt since the 2008 recession.

The highest point for consumer debt was way back in the third quarter of 2008. Debt stood at $9.99 trillion. After this point, mortgage began a steady decline because of homes being given up due to default. Add to this the fact that few new home mortgages are being taken out for fear of the market and economy in general.

The increase in debt is being studied in comparison with a decline in delinquent payments as well. The study revealed that the delinquent payments for credit cards during the first quarter of 2014 was at 8.5%. This is the lowest percent of delinquent payments since 20013. This is a great indicator of consumer confidence in personal finance.

The study shows as well that there is an increasing number of young consumers aged 22 years old to about 25 years of age that are taking out auto loans. This holds true for those that has student loans and those that do not carry any student debt. There are a few reasons for an increase in auto loan takers such as:

  • Stable fuel prices. A steady performance of fuel prices has been generally a great contributor in the increase of auto loans. Thedetroitbureau.com even reported that because of stable prices of fuel, there are shifts in consumer preference in car brands.
  • Interest rates. The rates for car loan are relatively low and this encourages consumers more to buy that car that they need.
  • Credit availability. This is an example of an economic supply and demand ratio. As more people are looking for lenders for an auto loan, more banks are offering the loan instrument. Extending the service to cover the consumer market that are on the lookout for auto loans.

Talking more about consumer debt,  mortgage had quite a decrease in the 27 years old to 30 years of age market. The survey even pointed out that a lot of it has to do with people struggling with student loans.

Student loans are affecting mortgage loans

Carrying big debt can lead to terrible things to  your family. Debt is is both prohibitive and limiting in nature. This does not limit itself to just mortgage loans, credit card and auto loans. In fact, one of the bigger industries at the moment is student loans. The industry has seen phenomenal increase over the past few years.

Westernherald.com shows that in the past 10 years, there has been a 300 percent increase in student debt. The industry is now at $1.2 trillion and growing. In 20013, the student debt stood only at $253 billion and steadily climbed up. In fact, if grouped with other consumer debt such as mortgage loans, credit cards debt and auto loans – student debt kept at increasing in a steady pace.

This year, there are about .85 college students graduating with a bachelor’s degree. Simple straight computation would indicate that each one of them would have an average of about $26,500 a college graduate. Even with lower delinquent payments for student loans, there are still about 30% in default for federal loans. This indicates that there are quite a large number of borrowers struggling with payment.

This is in fact one of the things that experts are looking at as a cause of a decline in new mortgages for possible borrowers with student loans. Simple logic dictates that having a big student debt puts stress on a borrower to pay. The chances are they send in  late payments or worse, delinquent payments. This would reflect negatively on their credit score. And a subprime borrower would either be slapped with a high interest rate because of the risk or be denied outright. These two scenarios would lead the borrower to put off a mortgage loan until the student loan is paid or their credit score improves.

This is a dilemma knowing how a college education benefits the income. There is evidence to support that college graduates are able to land better paying jobs than high school graduate. Unemployment for college graduates are at 6 percent as compared to 13 percent for high school graduates or those who do not have a college degree.

The student loan debacle can boil down to one point, managing any consumer debt has to be done with financial literacy at the helm. From the time the loan is to be taken out until the repayment period all the way to paying it off. Having the basic wisdom if the loan is really something that is needed to the budgeting of monthly income to pay off the debt requires financial literacy.

It is one thing to qualify for a loan but it is another to make the payments to maintain a good credit score. Having a good paying job will not worth much if you delay on your payments and use the funds for unecessary expenses. Having a goal to aim for can greatly help in steering you over to the right direction. Having a  budget as well to guide you in your daily expenses will bring you closer to that goal.

The increase in consumer confidence because of an increase in debt and decrease in delinquent payments is a good sign that people are able to maintain debt and make the payments on time. They are more aware of the financial responsibilities and the effects of mismanaging the payments. It can also show the confidence people have in the economy because taking out loans are long term responsibilities.

 

Study Shows an Increase in Household Debt

House with cash on the roofHousehold debt is a combination of all loans and debt a family would have. This includes mortgage loans, credit card debt, student loans, and even credit card debt. There is nothing wrong in having most of these on your list, even all of them. The idea is to properly manage the payments to allow you to still live your life the way you want to and not just live to work to make payments.

Online.wsj.com recently shared an article illustrating that there in an increase in household debt. This is a steady increase starting from July  2013 to January to March 2014. According to the Federal Reserve Bank of New York, the current numbers on  household debt is at $11.65T from $11.521. This figure shows a $129 billion increase between January and March 2014.

Mortgage in household debt

Housing is still on top of the list of household debt. Even with tough mortgage problems, housing loans still makes up the bulk of total debt in the US household. The mortgage industry now stands at $8.2T showing strength with a $116B increase. The jump from $8.08T shows as well a decrease in consumers getting into foreclosure. This is a big factor in a decline in the mortgage industry.

More than foreclosure, the increase in the industry also shows that new loans are on a slide. It has lowered to $332 billion for three quarters straight. Part of this is how the market is being priced. Most are on still a bit more than what the mass buyers can afford. With prices still at a high level, taking our new mortgage loans are still not very affordable for would-be new homeowners.

Credit cards usage in  household debt

Credit card is next on the list but consumer habits are changing leading to a decrease in the use of plastic credit. Since 2002, it is now at $659 this quarter. This amount went down by as much as $24 billion from the previous quarter. Year on year, same quarter last year was just a few point up from this quarter. This shows that credit card use in decline.

Gallup.com also confirmed this with a study that shows the decrease in the reliance of a credit card in the US economy. The study revealed that 48% pay the full amount when their bills come in. This is one perfect example of financial literacy. Making the credit card work in your favor. This is an 11% increase compared to data last 2004. Back them, only 37% paid their credit card in full.

This data also goes to show that the number of people leaving balances in their credit card has gone down. It is now only at 33% compared to 45% in 2004. Less and less people are putting off payment for the full amount. This is most likely because of the awareness on how interest payments and other finance charges are blowing up their payments more than it should be

The data also shows that more and more people are dumping excess credit cards and learning how to live off on a few plastic credits. The survey revealed that credit card ownership is at an all time low in 2014. From 2002, 17% of the respondents did not own a credit card. In 2014, that number went up to 29%. There was a 12% increase over the last 12 years showing steady and consistent decline in credit card ownership.

Digging deeper, it showed as well that consumers who carry 5 to 6 different credit cards went down from 12% to 9% in the same years. This again shows a steady 0.25% decrease every year from 2002 to present. Those that carried 7 and more credit cards also decreased from 11% to 7% showing a consistent decline of about .33% every year.

All these shows that from 2002, the average credit card ownership of US consumers went down from 3.3 to 2.6 in 2014. If the data was to exclude those that did not own a single credit card, the data would still go down from 4 to 3.7 in 2002.

Credit card ownership at a glance is:

  • No credit card highest in 2014 at 29%
  • Having 1 to 2 credit cards lowest again at 33% in 2014
  • Having 3 to 4 credit cards lowest in 2014 at 18%
  • Having 5 to 6 credit cards lowest in 2014 at 9%
  • Having 7 or more credit cards lowest in 2014 at 7%

Student loans and car loans

Student loans has taken up quite a big chunk of the debt industry when it broke into $1T total recently. This could even go up as Wnd.com  broke the story that government-funded student loans are about to increase according to an analysis of the the Congressional Budget Office.

A lot of college students and working professionals deal with student loans everyday of their lives. It is that one loan that you carry from college all the way as you walk to your first job interview and even up to the time you already have kids of your own. This is why a lot of debt collectors are earning a lot from student loans.

The balance for car loans grew as well to $875 billion with a $12 billion increase from the past. Getting a car of your own is just as much an American dream as getting a house is. Having a car of your own now is a necessity more than anything. And it is not cheap to get a car. Most first time car buyers forget that the cost does not stop in the purchase price. Gas cost should be a major consideration as well as maintenance cost. All these and more should be considered before getting a car loan.

Effects on the US Economy of credit card use

Financial literacy has a lot to do with reduced dependency of consumers with credit cards. Knowing how many card you have to carry and being able to pay for the purchases you charge is a sign of a being financially responsible. The lower number of credit card users who leaves balances in their statement goes to show as well that more and more consumers are beginning to understand how interest payments are making them pay more.

The financial crisis in 2008 was mainly due to the fact that people over borrowed and had little funds to pay it back. It started a vicious cycle of more borrowing because of living expenses and the need to pay off loans and getting and borrowing again to cover the same recurring expenses. It is only now that the economy is getting back up on its feet with the consumers leading the way.

The US economy is consumer driven. About 70% of the economy is dependent on the purchasing movements of the consumers. The more the people purchase, the better the economy is. Any sign of slowdown in the purchases of US consumers has a direct effect on the performance of the US economy.

The trend that has to be closely monitored is the combination of the slowdown in credit card ownership and a slow wage growth. The availability of using credit and the lack of funds to actually pay for credit purchases could have an adverse effect on consumer spending.

Financial literacy does not restrict purchase and limit household debt. It guides the consumer in making the right choices and makes them realize the importance of saving up for emergencies and retirement as well. It also shows the importance of dealing with debt payments and how it affects their everyday lives. Dealing with loans and debts and budgeting them are crucial in being able to financial freedom.

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