If this January holds true to form, the next four Mondays will rank among the busiest days of the year for the people who schedule credit counseling appointments at CredAbility.
January is the month when many people open their credit card statements and come to grips with the size of the balances they ran up during an emotion-filled holiday shopping season.
Last week, reports said Americans increased credit card spending in November and December. Perhaps it was due to recession fatigue, or renewed confidence that our economy is on the road to recovery.
But the consequence of all that credit card activity for many people will be unmanageable debt. The typical person who calls us for help with credit card debt is carrying a balance of more than $24,000, although many come to us with balances several times that amount with interest rates close to 30 percent.
I encourage someone in that situation to reach out to a nonprofit credit counseling agency such as CredAbility to get help sorting through the options. But for people who resolve to get out of credit card debt on their own in 2012, I have a few tips to get started.
● Stop using credit cards. That may sound obvious, but for some people used to buying everything on credit, it can be a tough habit to break. The most common solution my agency and others offer for people struggling with credit card debt is a Debt Management Plan, which usually lowers interest rates and eliminates late fees. One of the common questions people ask our counselors about a DMP is if signing up for one may hurt a credit score in the short term. Creditors may report it when someone signs up for a DMP. But people trying to dig out of credit card debt should avoid borrowing more money anyway, so their credit score shouldn’t be a top concern in the short run.
● Create a spending plan. Many people who come to us for credit counseling don’t track where their money goes. When our counselors assess a family’s situation through a counseling session, they tally monthly expenses and income as close to the penny as possible. It’s only after someone totals essential expenses that he or she can determine how much is left to pay down credit card debt. (We have free budget tools and calculators available at: www.CredAbility.org)
● Create a repayment plan. Our typical client who decides to repay through a DMP is carrying a balance on more than six credit cards. If people want to tackle that problem on their own, it’s important for them to get organized and decide which accounts should be paid off first.
Some people prefer to attack the card with the highest interest rates first while making minimum payments on the others. Other people prefer the psychological reward of paying off cards with the smallest balance first. Either way, the important thing is to make a plan and stick to it.
Many people who wince when they see their credit card statements this month will be able to pay down the debt on their own. But thousands of people will turn to credit counselors for help, and it’s not because they aren’t smart or can’t do the math. They call because they are often under a good deal of stress and want the calm advice of a third-party expert to help set priorities and create a sustainable plan. Our counseling is free, after all.
This is the time of year for resolutions. Some people want to lose weight. Others will pledge to go on a debt diet, taking steps to get financially healthy. I applaud everyone planning positive changes in 2012.
Phil Baldwin is president and CEO of CredAbility, a nonprofit credit counseling agency.
About the Author
