The financial crash of 2008 forced both borrowers and lenders to slam on the breaks, putting a freeze on most loans. Revolving credit, which is made up mostly of credit card debt, dropped in 32 of the 36 months during a three-year period as cardholders cut back spending while issuers lowered credit limits, tightened approval guidelines and cancelled risky accounts.
But this financial restraint is showing some signs of easing for both sides in 2012.
The latest Federal Reserve numbers from the monthly G19 report show that consumer borrowing increased by $7.65 billion to $2.46 trillion in October. This is the biggest increase in two years. Revolving credit climbed by $366.2 million in October, while non-revolving credit, including educational loans as well as loans for autos and mobile homes, increased by $7.28 billion.
Credit card issuers are once again aggressively marketing their cards, especially to consumers with good or excellent credit scores. Many people are probably seeing more credit card solicitations in their mailboxes with attractive rewards and balance transfer offers. Consumers need to guard against running up large account balances and getting themselves in a financial pinch once again.
Here are ten tips for reducing credit card debt in 2012:
1. Understand that paying off debt won’t be easy. It took time to accumulate this credit card debt, and it will probably take even more time to pay it off. Do not get discouraged or give up. Eliminating debt and building a secure financial foundation for yourself or your family is worth the sacrifice.
2. Get an honest assessment of how much you owe for all credit cards debts. It may have been easier to pay the minimums without looking at the total amount that you owe, but misleading yourself only makes it worse. Write down a debt summary that includes the creditor, monthly payment, interest, balance due, credit limit and due date for each loan.
3. Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you use to pay off your bills. Unfortunately, negotiating lower rates for credit cards is now more difficult than several years ago but it doesn’t hurt to try. If your lender does not offer a lower rate, shop around for another credit card.
4. Pay off the card with the highest APR first. Continue to pay the minimum on your other cards until you pay off the card with the highest rate. Then focus your effort on the card next in line. After you pay off the card, keep it open, especially your oldest cards. Losing this available credit can lower your debt utilization ratio which could lower your credit score.
5. Pay more than your minimum payment. Your minimum payment is usually only 2-5% of your balance. At this rate, it will take you many years to pay off your debt. Start with the card with the highest interest rate and try to double your minimum payment.
6. Balance transfer offers are currently very attractive so consider transferring your balance to a card with a lower rate. If your rate is above 12%, look for a card that offers 0% for at least 12 months. To take full advantage of this 0% interest, pay as much as you can above the minimum payment each month.
7. If you have a credit card balance, stop using it for anything other than necessities. Use cash instead. If you carry a balance, you are paying interest for every purchase, including clothing, entertainment or dinner. Factor that in to each purchase. For example If your APR is 15%, ask yourself if the purchase is worth paying an additional 15% in interest per year. Paying with cash will not only save money on interest, but it will also reduce the amount you spend.
8. Pay your bills on time, every time. Not only do you have to pay a late fee, but late payments can also appear on credit reports. Negative information like this can result in lower credit scores and higher interest payments.
9. If you are surprised by your current rates, check your credit report. It may contain an error that lowered your credit score, causing creditors to increase your rates. If you find an error on your credit report, contact the credit bureau to report it. They must respond to your claim in thirty days or remove the information that is incorrect or unverifiable. You can dispute by mail, telephone, or online. If the corrected error results in a higher credit score, alert your creditors to this and ask for a lower interest rate.
10. If you are in danger of missing a payment, or defaulting on your credit card loan, contact your credit card issuer as soon as possible. Your issuer may work out a payment plan with a lower rate or monthly payment if it will help keep your account out of default. If the first person you speak with can’t help lower your rate or make adjustments to your account, ask to speak with a supervisor or someone who can. Persistence may be necessary to find the person who will help you. Explain that you are in debt, the steps you are taking to repay it, and what you can pay today. Document all conversations, including whom you spoke with, and the date, time, and the results.