It’s simple. Credit card debt is a big problem in the the US. 25% of all Americans have more credit card debt than savings, including 60% of those earning less than $30,000 per year (2012 Bankrate.com survey).
The reason: too many people use credit cards to purchase the things they want now. The solution: save until you can pay cash.
Know the Ins and Outs of Credit Card Debt
No matter how you try to spin it, there is nothing positive about accumulating credit card debt. In fact, because credit cards offer a “convenient” way to shop, consumers tend to spend more when they use them instead of cash.
And if you’re among the many consumers who believe they can control their credit card debt –“beat the system” – by paying off your bill each month, you should know that only about 35% of cardholders actually do (2012 CardHub.com survey). Most let the balance roll over month after month by making the minimum payment or even adding more charges.
So what’s the solution?
First, consider not having any credit cards at all. This may be a tough sell for many people. After all, they are convenient and can help with unexpected emergencies. Plus many people use them as a tool for establishing a credit history and credit rating.
However, if you want to build your credit history and rating, you have to make monthly payments. That means you need to carry a balance every month. So, basically, you are paying the credit card companies to earn a rating that will secure you improved loans in the future.
Next, if you do have credit cards and you use them, pay off the balance as quickly as possible. That means making more than the minimum payment each month.
Start by looking at your credit card bill. You will see an area near the center of your bill required by the CARDAct (Credit Card Accountability, Responsibility, and Disclosure Act). It is separated into two sections that explain how long it will take you to get out of debt.
The first section shows the approximate number of years it will take to pay off the balance if you make only a minimum payment each month. The second section shows how much you must pay to eliminate the debt in three years or less. If your debt is small, these numbers might be the same.
Finally, use credit cards sparingly. That means for emergencies only (unexpected auto repairs or medical bills) and not for necessities such as groceries or rent.
Know Your Rights under the CARD Act
In 2009, Congress concluded that certain practices in the credit card industry were not fair and transparent to consumers. Therefore, they enacted the CARD Act. Administered by the Consumer Financial Protection Bureau (CFPB), the CARD Act provides consumer protection by:
· Prohibiting the amount card issuers can increase the interest rate on existing balances, except when the cardholder misses two consecutive payments
· Requiring card issuers to provide 45 days advance notice when increasing the interest rate
· Requiring that credit card bills be due on the same date each month and that payments received by 5:00 p.m. be treated as timely
· Ensuring that late fees and other penalties be “reasonable and proportional,” set by the Federal Reserve Board at $25 for the first violation and $35 for a second violation within the next six months
· Prohibiting card issuers from charging an over-limit fee unless over-limit transactions are allowed
· Prohibiting more than one over-limit fee on any one statement
· Requiring monthly statements to include how long it will take to pay off the bill and the total cost of paying only the minimum amount due
· Requiring monthly states to include the amount cardholders must pay each month to pay off the bill in three years, the total cost of doing so, and the savings versus making minimum payments
· Requiring monthly statements to include the annual interest and total fees
Additionally, if you pay more than the minimum amount each month, the credit card company must apply the excess to the balance with the highest interest rate.
So whether you have one or ten credit cards, you do have rights. Make sure you understand them as well as the ins and outs of credit card debt.