Credit Card Debt: Time to Pitch Your Plastic? Debt Consolidation

Credit Card Debt: Time to Pitch Your Plastic?

February 11th, 2010 Admin Leave a comment Go to comments

In 2008, average household credit card debt was about $10,600. Recent reports indicate that Americans owe about $2000 less today, but growing credit restrictions, including cutting credit lines for existing customers and refusing credit to new applicants is contributing to this trend. Contributing to the controversy over credit cards is recent federal regulatory legislation highlighting questionable practices of the credit card industry.

Fed Up with Credit Card Debt: Cut up Cards, but Don’t Close Accounts

Effective debt management includes three steps:

Determining where you stand and setting goals for improvement Developing a plan for eliminating debt Following your plan and staying on track until you meet your goals.

If you’re frustrated and fed up with the high cost of carrying credit card debt, it’s important to stop using your credit cards until your balances are paid off, but it’s equally important not to close your accounts:

Reducing available credit lines: Your credit scores are partially based on the amount of available credit lines you have. Let’s say that you have a $10,000 balance on a $25,000 car loan, and six credit cards with credit lines totaling $75,000. If you reduce your total available credit to $25,000 (the high credit on your car loan) by closing your credit card accounts, your credit score will decrease. Closing one or two cards out of several won’t matter much, but closing all of your credit cards can cause credit problems. Purchase protection benefits: Purchases made with major credit cards carry purchase protection; if an item purchased with your major credit card is lost, stolen, never shipped, or damaged within specific guidelines, it can be repaired or replaced free of charge. Purchases on debit cards, even those with major credit card logos, are not eligible for this benefit Protection from vendor bankruptcy: If you make a purchase from a vendor that files bankruptcy, you can file a claim with your credit card company for merchandise not received. If you paid with a debit card, you’ll have to file a claim with the bankruptcy court, which can take several months. In the meantime, you’ve paid for your purchase, and don’t have the merchandise or the funds you used to pay for it. Using credit helps maintain higher credit scores: Using debit cards does not affect your credit scores, but not having any active credit cards lowers your credit score. Using credit cards and paying off the balances each month establishes a record of responsible use and repayment.

In some cases, closing your credit card accounts may be necessary for regaining financial solvency. Debt consolidation and credit counseling services typically require closing credit card accounts as a condition of negotiating affordable repayment options with credit card companies.

Relief Debt Systems