Interstate Associates: When you’re at your credit limit…

Estimated reading time: 5 mins

One of the best things about credit cards is that they offer the ultimate convenience in immediate credit. I mean – before credit cards were invented, we had to go see the bank manager in his starched suit and, with cap in hand, ask for a line of credit. With a stern look, we might have been granted it. And then these amazing little flexible friends came along and Bam!!! we can buy stuff with money we haven’t yet got.

And there is the problem. Credit cards’ convenience to satisfy an instant fix is the very reason why so many people get into serious debt with their credit cards. Because it is so darn easy to pull out of the pocket and tap on terminal, we can walk out of the store with a new shirt, sneakers, Apple Watch, Ford Mustang etc. and any sense of self-control is harshly tested.

Of course, the credit card companies love this. Our spendthriftiness means we end up paying them lots of interest on the credit. The more we spend, the more we spend! It’s why almost every brand-name under the sun has their own credit card.

Credit cards are a very expensive solution for long-term credit. They’re great for short-term credit, but lousy for expenses that we will pay off over a long period. Their interest rates are crazy – particularly now: credit card interest rates are the highest they have been for 10 years. The average is about 23% – but there are some that are much, much higher. I saw a billboard poster for a card aimed at high-risk consumers that had a rate of 66%.

Consumer debt in America is at the highest it has ever been. Consumer debt includes credit cards, payday loans, line of credit from a bank, car loans, etc. The latest data from the Federal Reserve’s Consumer Credit report tells us the the total consumer debt rose to a massive total of $3.89 trillion in 2018, a 7.6% increase from 2017. Who knows what the number will be at the end of this year. What’s worrying is that the average American consumer has a huge $11,880 of consumer debt hanging over them. Consumer debt is spiralling out of control for American households.

The good news is that there are options for paying off high-interest credit cards that make it more affordable and reduce interest rates. But first, we got to stop using our credit cards.

Intestate Associates: Stopping Using the Credit Cards…

There is no getting away from it; to begin the journey of gaining control of our finances and preventing credit card debts getting any worse, we got to stop using the credit cards. It has to start here.

This is going to take a major adjustment in our headspace, because it is possible that credit card addiction has taken hold. This is a real thing. What it comes to is a “withdrawal” process.

Here are some ideas:

  • Put your credit cards away. Let your mom or somebody trustworthy to look after them for a while and see how you get on without them. Break the addiction.
  • Cut up the cards. Like I did when I went through a tough time with my credit cards, it can feel very cathartic to take a pair of scissors to them. Cut them up! It’s a sure fire way of stopping using them.
  • Start using Cash or Debit Cards. You can use debit cards in the same way as you do your credit cards, but (of course) you’re spending money you actually have today. Be it renting a car, booking a hotel room, or paying for groceries. It’s a more honest way of spending. Even braver is to start using cash more – that’s physical, hard currency in the form of bills and coins!

Once the habit is broken, we can begin to look at how to resolve bad credit and make sensible payments to pay off the balance.

Credit Card Debt Relief

It’s a myth that credit card debt can be ‘wiped out’ by easy-going credit companies and tick-box bankruptcy. The system doesn’t work if we can just eradicate our debts, by asking nicely, only to start racking up more bad debt. The whole financial system would collapse if it was that easy.

Credit card debt relief is when credit card debt is restructured to make the payments more affordable, normally by reducing the interest rate and making the payments over a longer period. These take the heat out of the situation by turning the bad credit into a more manageable loan. Credit card consolidation involves using a single personal loan to pay off any credit card debt. Most people can take this option and this doesn’t involve using a specialist company. We still need to meet the requirement for a loan with a lower interest rate, i.e. demonstrate the ability to pay it off, and it it obviously needs to offer a better interest rate and other fees than our credit cards to make this any good for us.

A common practice is debt consolidation, which we will look at next.

Interstate Associates: Consider Debt Consolidation

Your bank may offer you a debt consolidation solutions in the form of a home equity loans. These are arranged with your bank directly. You normally have to provide evidence on how you will go about paying off the loan on the agreed basis. The good news is that they are normally easy to arrange because you will have already have a relationship with your bank with history.

The other option is to hire a Debt Consolidation Company. These will assist you to reorganise your credit card debts into a single loan. The way it works is that you send a single payment (normally monthly but not always) to the debt consolidation company, and they take your payment and divides it up between all your creditors, sending them their repayment. Why many people find this attractive is that the debt consolidation company deals with the actual payment process, and with the creditors. This ensures that there is the right discipline and priority.

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