Unemployment, underemployment, salary cutbacks, divorce, medical emergencies and ballooning house payments all take their toll on household finances. This perfect storm of market conditions has resulted in skyrocketing credit card debt.
According to information gathered by the U.S. Census bureau, there were approximately 173 million credit card holders in the United States in 2006; a number projected to grow to 181 million this year. Americans charged approximately $1.950 billion in 2006 — just over $11,300 per cardholder (www.money-zine.com/Financial-Planning/Debt-Consolidation/Credit-Card-Debt-Statistics/).
At the same time, Americans carried approximately $886 billion in credit card debt; it's a number expected to grow to a projected $1.177 billion by the end of this year.
"People from all walks of life are struggling more with personal finance than ever before," said Jean Lakin, an educator and child development expert in the Family Resource Management division of MSU Extension.
The first step in tackling the problem is freezing your credit cards. Literally.
"I tell people to put them in a plastic container filled with water, then leave them at home — inside the freezer," said Debra Studebaker, a family and housing educator for MSU Extension. "You are less likely to use them if you can't easily get at them. It's not like you can put them in the microwave. It sounds simple, but it's not: We have to remember overuse of credit cards is how people get in trouble in the first place."
It isn't easy, but individuals have to stop racking up credit card charges if they wish to chip away at debt, Studebaker stressed.
The next step is to look your debt in the eye.
"People hate doing it, but it's necessary to begin tackling the problem," Studebaker said. "Get a simple lined piece of paper and write down how much you owe, to whom and at what interest rate, along with your monthly payment."
It's difficult to begin addressing a problem if you don't know how big it is.
For those unable to keep up with their payments, Studebaker recommends tackling secure debt first, meaning mortgage and car payments, saving credit card payments for last.
"This means paying on anything they can take away," Studebaker said.
Extension service educator Saneya R. Hamler reminds us to be certain to make monthly payments in a timely fashion to avoid late fees and protect credit.
Once everything has been assessed and the total amount owed has been determined, it's time to create a payment game plan.
"Break it down into small, manageable monthly goals," Studebaker said. "Once you get started, regularly measure how well you're doing. Your goal should be to become debt free."
Another possible strategy, Hamler said, is to pay the minimum off of all credit cards, except for one, the one with the lowest balance. Then put as much as possible on the one with the lowest balance until it's paid off.
At this point, it would be helpful to become assertive with creditors. Although the days of taking great pains to keep a customer's business are gone, Studebaker said, it is often still beneficial to discuss options with credit card companies.
"Call lenders ahead of time to see if they will work with you," Studebaker said. "See if they will waive late fees, lower interest rates or allow you to skip payments. If that doesn't work, ask to speak to their supervisor, and then their supervisor … until something comes together."
Those with stronger credit reports, Studebaker said, will likely receive a warmer reception.
If existing lenders aren't willing to lower payments, it's time to begin transferring balances to another card with a lower interest rate; it's also worth looking into obtaining a loan from a credit union to pay off debt at a lower interest rate.
"Credit unions often have more money to work with and are more willing to work with new clients than banks are," Studebaker said.
Seeking the help of a reputable credit counseling service may be the best bet.
Agents can intercede on your behalf with lenders to help hack away at debt.
Ethan Goldman of LeaseTrader.com recommends several online tools to shop for better deals on credit card rates, rental costs and automotive leases. These include:
* BillShrink.com
* Rentometer.com
* LeaseTrader.com
Keep in mind that your difficult financial situation is likely temporary. With that thought in mind, consider taking on a second job to help make ends meet.
"Maybe just for a year, or three at most," Studebaker said. "Just until you're able to reduce debt and/or general finances improve."
If, however, your financial picture is especially grim, it might be worth it to consult a bankruptcy attorney, Studebaker said.
"Bankruptcy doesn't hold the same stigma with people and creditors that it once did," Studebaker said. And in many cases, new credit can be obtained within two or three years.
Stay debt-free with less money
Saneya R. Hamler, an MSU Extension educator in Oakland County, recommends the following strategies to remain successfully debt-free with less money:
Grocery shop with a list, shop sales, stock your pantry and menu plan. Menu planning helps to keep everyone informed about what will be served at each meal, and for snacks, this will cut down on disagreements about food and help people get the most out of their food dollar.
Share responsibility with neighbors such as baby-sitting each other's children for free to save money.
Hosting potlucks creates the atmosphere of a party without the burden of spending for a party. This also is true if you plan a cookout.
Keep in mind that health departments provide basic medical services free of charge.
Most communities have clinics with floating cost that will help meet other medical needs.
Ask your family physician/dentist if they can be paid using a payment plan and/or if they have free samples of medicines, dental supplies, etc., to cut down on prescription cost.
Check with local MSU Extension offices for a list of community resources, including housing options, and fun free or low-cost ways to spend time with kids.
Departments of health and human services, community action agencies and local churches are great sources for food, clothing and utility assistance.
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