Credit Card Debt

As reported here last week, it’s becoming increasingly clear that credit card debt remains a serious problem for many millions of Americans. So yesterday’s advice from Keloland Television should prove timely for many readers. It suggests that, if you’re struggling to pay down your credit cards, you should:

• Budget even more carefully than usual so that you know precisely how much you have to spend
• Look for ways to cut costs and/or boost income, perhaps with a second job
• If possible, stop charging altogether, but certainly try to avoid adding to balances
• Call your credit card companies: be honest about your problems, and ask for lower rates
• Look at the options provided by balance transfer credit cards, with a zero or low rate

However, Keloland Television warns about a catch with many balance transfer credit cards: “If you don’t have the whole balance paid off at the end of the transfer period then you’re charged interest from day one on the whole balance.”

The report also advises that you list the balances outstanding on all your cards. Then, pay the minimum on them all, and, say, an additional $25 a month (or whatever the most you can afford is) on the smallest. Once that’s paid off, pay off the next smallest balance using the $25 or whatever, plus the minimum payment you no longer have to make on the first account. Carry on until all balances are zero.

Credit Card Rewards Programs

Also yesterday, the Los Angeles Times provided advice for those who use credit card rewards programs. It warned that many of these are being watered down, and are introducing or hiking fees. And it recommends reviewing your rewards as follows:

• If you use your rewards for flights, try to concentrate your flying with a single airline partnership alliance
• Think about transferring miles between programs
• Consider swapping to a hotel program, or cash-back credit card, as points with these are often easier to redeem

Student Credit Cards

Recent credit card regulation has tightened up enormously the rules surrounding cards and young people. Perhaps most importantly, credit card companies are no longer allowed to issue cards to anyone under 21 years old unless:

1. that person can prove that they have the independent means necessary to make payments, or
2. he or she can find an adult to co-sign the credit card application

Although many welcome this, and other rules as a valuable way to prevent naive and inexperienced young people getting excessively into debt, it does bring a whole new set of problems for parents. As the New York Times pointed out last week, they now have to decide whether to:

• co-sign a credit card application, and so risk their own credit scores
• make their offspring an authorized user of one of their own cards, and be ready possibly to mop up after them
• insist on cash, a debit card or a pre-paid credit card being used, and possibly encounter resentment

Each of these has the potential to cause ructions in any family, and the Times suggests that parents should make their choice based on their past experiences of their child. And, perhaps, student credit cards should be reserved for those who have already proved themselves financially responsible.

Published 03/22/10 (Modified 04/23/12)