Credit card debt: Beware of climbing balances

Credit card debt in today’s economy is pretty much a fact of life and it’s a fine line we walk when it comes to managing that debt. It can also get out of control fast so it’s crucial to our mental, emotional and in some cases physical well-being to stay on it like – what’s the phrase? – oh yeah, like white on rice!

Can You Recognize the Warning Signs Your Credit Card Debt is Out of Control?

Do you cringe when the phone rings? Do those yellow or pink envelopes you get in the mail go unopened? Do you have a stack of late notices that you plan to take care of “one day”? Do you hold your breath when you use your credit card to make a purchase, not knowing if it is going to be declined or accepted? If any of these things happen to you then you are definitely getting buried in debt.

In a article posted by NBC News, Sonya Stinson commented — “We recommend that people’s debt load be no more than 20 percent of their take-home pay. That includes the vehicle. So, if you bring home $1,000 per month, and you’ve got a $200 a month car payment, you’d better not owe anybody else. We also recommend that your housing expense not be over 30 percent.”

Ha! There is an ever growing number of Americans whose debt load is in excess of 90% of their take-home pay. With many of us actually having more monthly debt than income!

Another indicator of your debt getting out of control is how much of your monthly debt you actually pay each month. The following are a few true or false questions:

1. I normally pay only the minimum amount due on my credit card bills.

2. My credit card balances increase each month.

3. Most of my credit cards are near the limit, so I’ve begun applying for new lines of credit.

4. I skip paying my bills some months, or pay late.

5. Collectors have begun contacting me.

6. Next month’s bills arrive before I’ve paid this month’s.

7. I have no emergency savings account.

8. I am consumed with thoughts of my debt.

If you answered yes to most of these questions, then you are in, or are about to have, a debt crisis of your own. Now the question is, what can you do about it?

1. Stop spending money. This sounds like the most obvious solution, and it is, but all of the other advice in the world is not going help if you keep adding to your credit card balances. Get on a budget, and eliminate your credit card spending. Only then can you do real damage control.

2. Get a lower rate. It's worth calling your credit card company(s) and asking them to lower your rate. They aren’t always going to say yes, but since it can save you lots of money in interest as well as reduce the amount of time it takes to pay your debt back, it's worth asking.

3. Consolidate. Another option is to consolidate your debt, either by getting a debt consolidation loan from your credit union, or by taking advantage of a 0% balance transfer offer. Consolidation loans tend to have higher interest rates than a mortgage or auto loan but it's likely to be much better than credit card interest. An even better option might be finding a new credit card to transfer all of your existing balances to. So, for the next 15 months, every dime that goes to pay on your credit cards can go to reducing the principle -- not to interest.

4. Pay more than you have to. Once you lower your interest rates or consolidate your debts, it's important to pay the debt aggressively. Even a small increase in your payment now can mean much less interest down the road. This is particularly important if you choose the 0% APR balance transfer route -- you should pay down as much as possible while the interest isn't running.

5. Get on a repayment plan. If the above options would still result in a minimum monthly payment that is too much to handle, you may be able to work out a repayment plan with your creditors either on your own or through a credit counseling service. A great place to start is the National Foundation for Credit Counseling's website, which is a nonprofit organization that can help get your debt under control.

Sources: 4Front Credit Union