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Dealing with Credit Card Debt

Go Figure

The credit card industry experienced a 26 percent annual growth rate over the past 10 years. In addition, the credit card industry's advertising budget doubled between 1994 and 1998, increasing from $425 million to $870 million.

Much attention has been given lately to America's obsession with credit cards and spending. A book in 2000 by Dr. Robert D. Manning, a leading expert on the credit card industry, revealed that Americans collectively owe a staggering $600 billion in credit card debt.

Manning's book, Credit Card Nation: The Consequences of America's Addiction to Credit, is critical of the credit card industry, which is quick to issue cards to just about anyone, regardless of the person's financial situation. The book attracted attention from the national media and got many people thinking a bit more carefully about their own relationships with their plastic.

More than 60 million households in the United States are carrying balances on their credit cards. That means they're not paying off the bills each month and racking up serious interest charges on the money they still owe.

Credit card debt is a big problem in America and a huge liability to many, many people. If you have serious credit card debt, it's very important to address the problem and figure out a way to reduce or eliminate the debt.

Credit Card Nightmares

Don't Go There

Don't think that if you make the minimum payment on each of your credit cards each month, you're doing well at repaying debt. By paying only the minimum each month, you're still wracking up big interest fees, especially if you're carrying a high balance.

Let's say that you always paid off your credit card bill every month. You get the bill, take out your checkbook, and write a check for the full amount. You don't even know what the interest rate is, because you never incur any interest.

Suddenly, a series of events wreaks havoc with your financial situation. Your husband loses his job. You need major dental work—and it's not covered by insurance. Your father gets very ill, and you spend huge amounts of money flying back and forth across the country to spend time with him. You're depending more and more heavily on your credit cards, and now you're unable to pay off the balance in full when the bill arrives.

Only after you can no longer pay off your balance do you learn that your interest rate is 17 percent, and you're paying $28 a month in interest on a $2,000 balance.

Still, you keep using your credit cards to buy what you need, because there just isn't enough money to pay cash for everything. Your balance keeps getting higher and higher, and although you're paying a little bit each month, the interest fees keep mounting. Soon you owe thousands and thousands of dollars and have no idea of where the money to pay it back will come from.

This scenario is not at all unusual. Credit card debt has caused nightmares for millions of people, some of whom have been distraught enough over their debt to kill themselves. In addition, the number of American households filing for personal bankruptcy protection each year is on the rise.

So what to do if your credit card debt is out of control? Read on.



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Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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