I don’t mean to be a nag, but your credit card balance is growing again. Have you forgotten your promise to never carry a balance from month to month and not to make only minimum payments? When you add in that new auto loan, your debt is starting to be a problem.
No, I didn’t hack into your personal finances. It’s an educated guess, based on the Federal Reserve’s latest quarterly look at household debt and credit. All those lessons of the recession seem to have faded. Consumers added $17 billion in credit card debt in the second quarter.
The overall total of $729 billion in credit card debt is still below the peak of $866 billion in mid-2008, but the trend of rising balances is worrisome. And according to the Fed report, card borrowers with the lowest credit scores are more likely to hold larger balances.
Credit card balances aren’t the only trouble spot. According to Nick Clements of MagnifyMoney.com, a personal finance website dedicated to helping consumers get out of debt and grow their money, the scariest element of debt growth is in sub-prime auto loans. Rising car sales are coming at a steep price, both in terms of the rates consumers are paying and the risks lenders are taking.
Maybe it’s time to take a closer look at your own debt and the potential impact of an economic slowdown on your finances. With the average credit card interest rate well over 15 percent, and many approaching 30 percent, the most sensible thing is to attack those balances now, while you have some choice in the matter.
Here are two ways to approach the problem of paying down card balances.
—Pay it off in three years. There is a simple mathematical formula that always works, no matter what the size of your card balance or interest rate. Just take the current monthly payment and double it. Make note of that amount, and keep paying that same amount every month. Don’t charge another penny on the card. Your card will be paid off in three years.
—Buy time with a balance transfer. Transferring your current balance to a new card can give you time to get your debt management program started. But beware of fees and conditions. According to CreditCards.com (a division of Bankrate.com), of the 89 cards that offer a balance transfer, 77 of them charge a significant fee, averaging 3 percent of the transfer. Also, the “no-interest” grace period may differ, as will the rate charged on your balance when that period expires. Average rate at the end of the transfer period is 17.83 percent.
According to CreditCards.com, the very best deal out there is the Chase Slate card, which doesn’t charge a fee if the transfer is made within 60 days of opening the account. And you don’t pay interest on the Chase Slate transfer for 15 months.
There are some other alternatives if you’re buried in credit card debt. Instead of hiding from the card issuer, ask for a late fee waiver or even a waiver of the annual fee. CreditCards.com says 89 percent of cardholders who asked for a late fee waiver had their requests granted, and 78 percent of those who asked for a lower interest rate were accommodated. (This works better if they know you’re not desperate — something card issuers can see at a glance on your credit report.)
And if you’re really stuck, contact the National Foundation for Credit Counseling at 800-388-2227, which will connect you to the nearest local office of this trusted organization.
The first step is to make a list of all your debts. Then get started on a plan, because debt is a problem that only grows worse over time. And that’s The Savage Truth.
Terry Savage is a registered investment adviser. She responds to questions on her blog at TerrySavage.com.