Credit Card Debt Problem

If you have a credit card debt problem, read our free report.

The following article appeared at USA Today:

Lower credit card debt traced mainly to charge-offs By Christine Dugas, USA TODAY Americans cut more than $93 billion in credit card debt from 2008 to 2009. Good news, right? It's not what it seems, according to an analysis of federal data by CardHub.com, a credit card comparison website. Rather than turning wholly frugal, consumers instead fell further behind on bills in 2009, causing a surge in debt charge-offs, says Odysseas Papadimitriou, CEO of CardHub.com. Consumer debt related to credit cards fell from $969.3 billion in the fourth quarter of 2008 to $876.1 billion in the fourth quarter of last year. "When consumers are paying back more, that's a sign of great financial health," says Papadimitriou. But his analysis shows that in the third quarter of last year, bank charge-offs reached their highest rate since 1985. Charge-offs occur when consumers declare bankruptcy or when their credit card debt is 180 days past due. The study found that 90% of the $93.2 billion decrease in credit card debt was attributable to bad debt being written off the books. Only about $10 billion was related to consumer payoffs, and most of that occurred in the first quarter of last year. The average U.S. household has nine credit cards. Credit card use and card companies' practices have been under scrutiny since the recession began. In the past year, credit card companies and banks have reduced credit limits, giving consumers less access to capital. And as card interest rates have gone up, many consumers have turned to debit cards instead. A host of new federal regulations for credit card companies went into effect last month. More rules have been proposed, and they will go into effect this summer. The economic recovery may help more consumers start repaying their debt. But it's hard to know "if they have learned a lesson and are going to be more responsible," Papadimitriou says. "Or will they quickly forget what happened and start pulling out their credit cards again and start charging up?" John Ulzheimer, president of consumer education for Credit.com, is cautious in predicting whether consumers have changed credit card habits. "I think that the assumption that people have learned their lesson and are going to change how they use credit cards is a little bit optimistic," he says. "I think the reality is that most people want to continue to use credit cards, will continue to use credit cards, and as soon as banks start loosening the purse strings, they will increase the use of credit cards," Ulzheimer says.

Pay Off Credit Card Debt - Can You Calculate the Cost?

You got injured. You lost your job. A business deal went sour. You did not realize how much you were charging. You do not know how you can pay off credit card debt.

For whatever reason, the number $10,000 is the figure on the total balance due on your credit card bill. But you have been able to afford that minimum payment of about $200.00 per month. You just use the card to buy gas and buy dinner every now and then. The balance just never seems to go down though and actually grows little by little.

What is that $10,000 really going to cost you? Have you ever tried to calculate it?

With the new credit card law that has just gone into effect, the card companies have increased rates and lowered credit lines. An interest rate of 27.9% is not infrequent and news reports have a few credit card rates in excess of 70%.

Let's go back to the $10,000 example because it is one that fits a very normal situation. If you use one of the above calculators, you will find that if the rate is 18.9% which appears to be a normal rate for a first escalation, the minimum fee is $600.00. If you only pay the minimum of $200.00 each month, it will take 53 years to pay off your balance, even if you make no more charges and make only the minimum payment on time each month. The really, really bad news is that you will pay $34,336 just in interest just to pay back $10,000!

In another example, the total debt is $30,000 at that same 27.9%. The calculator reports:

Based on the information you provided and assumptions that we used to calculate the time to repay your balance, we estimate that you will never pay off your credit card balance if you only make the minimum payment because your payment is less than the interest charged each month.

If the $30,000 were only at 18.9% with a minimum payment of $600, it would take

75 years and cost $108,453 in interest.

By now, it should be very clear why the credit card business has become so huge and also why the failure rate is out of sight. People who have held on now for a year or two are reaching the point where they simply cannot make it much further.

Here are two calculators that are available free on the internet so you can do it yourself.

http://www.federalreserve.gov/creditcardcalculator/

http://www.ftc.gov/creditcardcalculator

With options such as budgeting, debt negotiations, and even Chapter 7 bankruptcy looming, you should also be aware of another calculator. It calculates the snowball method of paying off credit card debt by concentrating payments on one card.

Here is where you can find the calculator: http://www.whatsthecost.com/snowball.aspx?country=us

Find out more about how you can pay off credit card debt