Credit Basics
Now is the time to tackle that pile of debt
by
Robert K Heady
Banking Columnist
January 20, 2003
FORT LAUDERDALE, FL -- No doubt about it.
Financially, this can be the ugliest time of the year. Holiday spending bills piling
up. Credit card statements with big balances hitting your mailbox. Not enough cash
to reduce your mounting debt.
Meantime, TV and radio commercials blast
you with offers of "quick debt elimination," "easy home equity loans even with poor
credit" and "fast cash until your next payday."
You're up a tree. So are millions of
other Americans who've rung up $1.7 trillion in debt. No wonder the credit counseling
business is typically up about 20 percent in January and February, after total bankruptcies
soared above 1.5 million last year.
Is there a way out of the post-holiday
bill-paying blues? Yes, but simply making New Year money resolutions isn't enough.
Why? Because 70 percent of consumers break their resolutions only one month after
making them. You've gotta take the bull by the horns -- the right way -- to get
out of the mess you're in.
Where do you begin?
By first understanding where you stand
financially. No more moaning, no crying, no more putting things off. Now's the time
to sit at the kitchen table, track your spending, and create a budget showing income and outgoing expenses. "Start saving a dollar a day and all pocket change. It will
average $50 a month," says Howard S. Dvorkin, vice president of the Association
of Independent Consumer Credit Counseling Agencies, who also heads a large counseling
service (www.consolidatedcredit.org).
Believe it or not, adds Dvorkin, "Today
three out of every four people we see have no idea of where they stand money-wise."
His tips: "Pay cash instead of using credit cards. Don't take on any new debt, and
pay off old debt. Have weekly family meetings on improving spending with other family
members. Most Americans are wasting 20 to 30 percent of their money because of poor
spending practices."
Also: "Clean your house, and sell items
that are losing value or donate them to charity".
"The problem," says Dvorkin, "is that
people don't recognize the depth of their problem. They think things will get better
next week -- improve dramatically -- but they don't."
One big temptation to slash debt is
to transfer balances from high-rate credit cards to low-rate plastic. But beware,
warns Kyle Markland, president and CEO of Affinity Plus Federal Credit Union in
St. Paul, Minn. "Read the fine print in the credit card disclosures. Especially
watch out for `special rate' balance-transfer offers (many issuers charge anywhere
from 0 percent to 2.9 percent on transferred balances)."
An introductory rate can change at any
time. It could zoom to 18 to 24 percent after six to nine months, and there's usually a fee of up to 5 percent on the amount transferred. On a $5,000 balance, that's
$250. Remember that a low intro rate only applies to the transferred balance, not
new purchases. And if you're so much as one hour late with your payment on the new
card, the rate could rocket. Repeat: Study the fine print.
Markland and Dvorkin urge cardholders
to always try to pay $25 to $100 above their minimum monthly card payment. "Also,"
adds Dvorkin, "when you assemble your bills, pay off the highest-rate cards first
to reduce the amount owed faster."
Finally, if you're still deeply over
your head after all those steps and planning, contact a credit counselor sooner
than later. Check www.ftc.gov, www.cardweb.com and www.bankrate.com for excellent
info on credit and debt.
