How Much Credit Card Debt Is Too Much?

Steve Bush By Steve Bush, 28th Aug 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/1ufsm_gp/
Posted in Wikinut>Money>Credit Cards

Reducing credit card debt involves several strategies. Credit counseling and expert legal help is usually more practical and less expensive than debt settlement companies.

Reducing Credit Card Debt

How much credit card debt is too much? Since many credit card companies charge interest rates varying from 15 percent to almost 40 percent, a prudent answer is somewhere between zero and none.

However, that is the wrong answer from the perspective of your friendly credit card issuer. These companies regularly make aggressive credit card offers that many consumers cannot refuse. It is easy to imagine that Tony Soprano and Michael Corleone would be proud to see how successfully banks and other lenders have added payday loans and credit cards to their family of financial services. Yes, they are fictional characters. But life does truly imitate art when big banks can charge annualized rates exceeding 400 percent for a typical payday loan.

Just as many banks have found it hard to avoid payday lending programs because of the high fees that can be charged, credit card issuers like the potential excessive profits from credit cards. The prevailing sentiment from banking institutions and other credit card companies is that everyone needs a credit card. Whether the advertising message involves a rewards program or another not-so-subtle theme, the message is the same: “You need one of our credit cards in order to make your financial life complete.”

How can each of us reduce credit card debt? Practical and responsible alternatives include the use of nonprofit credit counseling services and specialized legal options that can involve bankruptcy as a last resort.

Avoiding Credit Card Debt Is the Winning Move

For those without any credit card balances, the smartest move is to avoid any credit card debt altogether. A popular quote from the 1983 movie “WarGames” says it best:

“The only winning move is not to play.”

However, if you do have credit card balances that you want to reduce to zero, here is a short video that illustrates one way to proceed — “Reducing Credit Card Debt Using the Snowball Method.”

Credit Card Settlement Options

Managing credit card debt sometimes involves attempts by borrowers to reduce their account balances with a negotiated debt settlement. Until a credit card company agrees to settling outstanding debts, borrowers have a legal obligation to continue payments that will reduce current balances. If a credit card issuer declines a debt settlement offer or refuses to negotiate, account holders can review options that include credit counseling and legal help.

Individuals can negotiate debt settlements themselves or with professional help. Obtaining a debt settlement agreement usually requires a financial hardship such as unemployment that impacts the ability to make normal payments. Arranging to settle credit card debt does not always involve forgiveness of debt by the credit card company. Borrowers can frequently arrange a reduction in interest rate, decreased payments and modified payment dates. With a forbearance agreement, a lender agrees to no payments for a specified period of time. However, both parties must agree to any settlement in order for it to be binding.

Avoiding Debt Settlement Companies

A debt settlement company is a business that earns fees by negotiating a reduction of credit card debt. Similar firms are referred to as debt management companies. Consumers choosing this approach should be cautious as there are significant variations among businesses providing debt settlement services. For example, some credit card settlement firms require borrowers to let the company control and manage the money throughout the debt settlement process. This practice is not recommended by professional groups such as the American Fair Credit Council.

Credit Counseling by Nonprofits

A nonprofit credit counseling organization can review all financial aspects for an individual rather than focusing strictly on credit card debt. This comprehensive approach is often a prudent step for borrowers experiencing problems in meeting monthly financial obligations. Borrowers with excessive credit card debt frequently have other monetary problems that require attention at the same time.

Legal Help

Credit card agreements are legal obligations, and the early involvement of a legal expert is advisable. Borrowers should seek advice from an attorney prior to entering into arrangements with debt settlement companies. However, if an individual is involved in a debt settlement agreement that is not accepted by the credit card company, it is not too late to contact an attorney for legal help. Specialized options such as bankruptcy should be considered as a last resort when a debt settlement offer cannot be finalized.

Credit Repair and Fixing Credit Bureau Reports

Repairing your credit report can prove to be one of the most daunting challenges you will ever face. Getting advice from as many experts as possible is a smart move. Living debt-free while maintaining an accurate credit report is always difficult. But the long-term results are worth the effort.

Tags

Bankruptcy, Credit Card Debt, Credit Card Settlement, Credit Counseling, Credit Repair, Credit Report, Debt Management

Meet the author

author avatar Steve Bush
Steve Bush is a business finance consultant and writer. He served in the military as an officer in the U.S. Navy Supply Corps. Bush obtained an MBA at the University of California, Los Angeles.

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