CAPC Debt Management Blog

According to the Federal Reserve, Americans are drowning in debt with a record revolving credit balance of $975.2 million as of the end of 2007.  This works out to around $11,000 to $12,000 in credit card debt for the average household in the United States, a pretty staggering total.  Are you one of the millions of Americans struggling with debt on a monthly basis? Are you hiding it from a loved one or spouse scared of what he or she may say or just plain embarrassed?  You’re not alone.

As many as one in five American households are either behind on credit card payments or possess at least one account in which they are over their limit.  Living in this “penalty rate zone” of credit cards isn’t easy.  But there are options available to the average consumer that can alleviate the stress of continued monthly credit delinquency.  Consider the following five tips and start your journey on the road to financial security today:

Tip #1 - Consider a Budget:  Do you know how much you spend each month?  What is your average current credit card obligation?  How many ‘essential expenses’ do you have? A car, rent or a mortgage payment, food, and loans, are considered essentials. Eating out, the new Disney movie and your local gym membership, are not essential.  Track your spending and eliminate the fat, you may be shocked at your monthly savings.

Tip #2 - Cut up your Credit Cards:  If you have a credit card with a balance that is more then your regular monthly salary, that’s a problem.  Consider cutting up the card completely or putting it completely out of reach for the time being.  Are you making the minimum payment?  If so, that goes completely to interest and won’t move your outstanding balance much at all.  Make sure you check out our free credit card calculator and see what increasing your monthly payment will mean to your future financial security.

Tip #3 - Debt Management Plans:  It’s not easy to ask for help from any debt management or credit counseling company.  But it may be the smartest decision you ever make.  If you are over $3000 in credit card debt and need that debt paid off faster and cheaper then you ever thought possible, this may be the option for you. Read our detailed information on what is debt management and see if it may be right for you. Read the rest of this entry »

Credit cards are often equated with bad money management, but they can also do a lot for your credit score and your overall financial picture if you use them wisely. The key is in avoiding some common credit card mistakes.

The biggest mistake that people make is opening too many credit card accounts. The average American has eight credit cards, and almost $8000 in credit card debt. All these extra cards are extra opportunities to spend beyond your means. What most people don’t think about is the funds it will take to repay those charges. When you add the interest charges and other fees, you’ll end up paying two or three times as much as you actually spent. The best way to correct this mistake is to not open multiple credit card accounts to begin with. If you already have multiple accounts, stop yourself from opening any more.

But don’t close the accounts that you already have. Closing all of your credit accounts is another mistake that many people make. It may seem counter-intuitive to keep multiple accounts open, but it’s better for your credit score if you keep the accounts open. As you start to pay down the balances on your existing cards, you’ll change the credit to debt ratio. A portion of your credit score is calculated by looking at how much credit you have compared to how much of that credit you’ve actually spent. This credit to debt ratio will increase as you decrease the balances on your cards.

For example, if you have four cards with a limit of $1000 each, and have them all maxed out, your credit to debt ratio is 100% ($4000 on the cards divided by $4000 potential credit). However, if you get one paid off entirely, and the others reduced to $500 each, your credit to debt ratio is 37.5% ($1500 divided by $4000). If you closed the account that was paid off entirely, you’d be back up at 50% ($1500 divided by $3000).

A lot of people make the mistake of not reading the terms and agreement when they receive their new credit card. Often times, there are important details in the fine print that will impact your credit and how you use the card. For example, that great introductory rate may come with some heavy penalties for late payments. Or you may be subject to a high yearly fee. Make sure to review the material that comes with a new credit card, or get a copy of the terms and agreement for your current credit cards. Read the rest of this entry »

Whew!  Christmas is over, things went off without a hitch, the kids are happy with their presents and there you sit with a pile of receipts and credit card bills that could sink the Titanic.  Ok, maybe it would only sink the S. S. Mino, but it certainly feels like the Titanic.  Don’t let your mounting debt paralyze your finanical mindset as you plan for 2008.  Time to put together a plan of attack and work that plan.  Here are a few tips to help you overcome your initial anxiety as you start planning the family budget for the months ahead.  You can can do it, you just need a plan.  Follow the 5 tips below and save your family from repeat servings of Ramen noodles in the coming months.

1. Take stock:  Now that Christmas is over, there will still be birthdays, showers, or special events coming up that you will need gifts for.  This is the time for re-gifting.  That great candle you got from Aunt Lucy or that bath set you got from Cousin Steve could be the next gift you give to a friend.  Re-gifting of nice, unopened gifts is a common practice and allows you to skip the hassle of returning.  Take all the gifts you will not use and place in a box marked “gifts” in your closet and pull them out as needed.  This will save you shopping time when such unexpected events comes up and will also save you money to use for necessities and bills.

2.  Cut up Store Rewards Cards:  That department store card you signed up for only to get the extra 10% off your purchase; will only keep you shopping there if you keep it in your wallet.  If there are no additional discounts with these store rewards cards you should cut them up now so you are not tempted to use them again in the future.  This will also help you to manage your cash flow and keep track of how much you owe on your main credit cards.  Having too many store rewards credit cards can lower your credit score and make getting additional credit in the future more difficult.  Cut them up now before they become a problem.

3.  Manage Current Credit Cards:  If you haven’t bought into the computer money management programs, then now may be the time.  There are many great programs out there that will allow you to set up separate accounts for each banking or credit account you have.  I recommend Quicken Personal Finance or Money from Microsoft.  Once you have set up all your accounts you should set up a schedule to enter your receipts into the program to help you keep track of what you have spent, what days the bills are due, and how much you owe on each bill.  This will help you take a look at your spending habits and manage your money better.  Read the rest of this entry »

 If you are anything like me you have done two things this holiday season that may spell doom for you in 2008.  The first is you waited to the last minute to holiday shop and now have nothing but fruit cakes and Christmas Tree air fresheners to give to your loved ones as gifts this year (something they will certainly remember in 2008).  And second, you probably bought the offending fruit cakes and air fresheners on a credit card since you didn’t have the money to buy them in the first place.

According to a recent Associated Press analysis of credit card debt from October and November, the value of accounts at least 30 days late jumped 26% to $17.3 billion in October compared to a year earlier. And some of the nation’s biggest lenders report increases of 50% or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

For most of us who relied on our favorite plastic shopping companion to fill out our Christmas lists this year that means record balances to look forward to in the New Year.  Record balances that due to mounting mortgage expenses, a weakening job market nationally and 2005 changes to the bankruptcy law (making it more difficult to eliminate consumer credit card debt), may make it almost impossible for consumers to keep on top of it in the months to come.

So what’s the average consumer with $1000’s in credit card debt to do in 2008?  Consider these five suggestions to get your debt under control in the New Year:

1. Stop Using the Cards - seems simple enough? Stop using the cards now and put a kibosh on accumulating more debt on top of the debt you couldn’t afford in the first place. Put the cards away, cut them up completely or make a promise to yourself that they will only be used again in the event of an emergency. And no, new shoes does not an emergency make.
2. Pay more then the minimum - Let’s say you are $5,000 in credit card debt with a 16% interest rate and a minimum monthly payment of $110. Did you know that just paying the minimum means it takes 25 years to pay off your debt and by the way, that $5000 debt ended up costing you $12,000 in total factoring in that extra $7,000 you just paid in interest. Yet DOUBLE your minimum payment to $210 and pay off the card in 28 months, saving you about $6,100 in interest. Read the rest of this entry »

Your credit score is an important part of your financial future.  If there have been blotches on your credit score in the past, you may want to start working on fixing them before they become stains.  Take advantage of the Fair Credit Reporting Act (FCRA) to get a copy of your credit report (free!) so that you can see what your current credit situation is.  Once you know your credit situation you can determine how to best fix it.  Not sure how much your current credit cards are really costing you? Make sure you check out our free credit card payment calculator to get an idea, then take the below steps to heart.

The following 5 steps will help you fix your credit - try them today:

1. Pay Your Bills on Time:  Paying your bills on time for even 1 month can raise your credit score by a number of points.  Paying your bills on time for 12 concurrent months will raise it quite a bit higher.  Putting together a written calendar or an on-line calendar can help you remember what days each bill is due.  Some online banking systems will even allow you to set up reminds for when your bills are due, take advantage of these if you have trouble keeping track of the dates.  Writing yourself reminds or setting up auto bill pay on your bank account or credit cards will also help, make sure that you will have enough balance in the account before the auto bill pay goes into affect so that you do not rack up unexpected fees for bounced checks or lack of funds.
2. Keep Your Credit Cards in Check:  The offer of 20% off at a local store to sign up for their credit card may be hurting your credit score.  Opening these accounts to get the discount and then closing them does not always help, closed accounts stay on your credit report for a number of months and may affect your credit score.  If you do use credit cards, manage them wisely.  Having low balances will incur less fees, and will make you look more responsible. On the other hand, maxing out your credit cards can lower your score and make you look like more of a risk.
3. Don’t rely on Bankruptcy: While bankruptcy will wipe away some debt, it does not wipe it all away and can actually cost you quite a bit to file.  Filing for bankruptcy can cost you anywhere from $300-$1000, consider how much debt you will actually be wiping out before you file.  Also, filing will be a bad hit on your credit score and in some cases can drop your score a few hundred points. Bankruptcy’s can be reported in some states on your credit report for up to 10 years, so think about your future as well as your current position before you file.  Some lenders will not even touch applicants that have a bankruptcy on their file. Read the rest of this entry »