Think you might be able to use some sound debt advice? If it is any comfort, you aren’t alone. Today there are somewhere around 200 million Americans aged 21 and over. The ones that carry credit cards average 3.5 credit cards per person. Card users that pay off their credit cards monthly typically payoff balances of just over $1000 per card. That may sound like a lot, but the average balance on cards that are not paid off every month is well over $8000. That’s per card, not per family. At an average APR of 14.99%, monthly credit card interest for average families that don’t pay balances in full every month is right around $350 a month. The combined minimum payments of say $550 a month leaves a mere $200 per month to be applied towards principal. That’s not much. If groceries are charged during the month, the cost of food for a single adult will add more to the overall balance than will be paid down by the minimum payments. Put groceries for a family of four on the cards, and groceries alone will add at least $500 to total debt every month (after making the monthly minimum payment. For people on a tight budget, credit card debt can grow very fast.
The First Piece of Debt Advice – Take Action Early
Credit card debt does not need to get out of hand. The problem for many families is that it is hard to detect the early signs of the growing problem. The warning bells that should go off at the point when a family first starts making minimum payments instead of paying their balances is often muted by the fact that giving in to the temptation to make minimum payments leaves some extra money in our pockets (at least the first). The first and most important of all pieces of debt advice is to pay your card balances in full every month. If your family has already accumulated balances too big to be paid down in one or two months, it is still not too late to keep the problem from getting out of hand.
The Second Piece of Debt Advice – Develop a Realistic Monthly Budget
Don’t put off acting on this important piece of debt advice because you’ve never done a budget before. Here are some basic procedures to follow:
- Start by getting all of your family’s financial information together in one place.
- Get all of your debts on one sheet of paper.
- Put your family’s expenses on a second sheet. Divide the expenses into three groups; those which are the same every month; those which vary from month-to-month, and those that are made on a quarterly or yearly basis.
- On a third sheet of paper, list any asset you may have such as savings accounts, equity in your home, and the cash value of automobiles you own. You should have cash savings sufficient to cover three months of minimum debt payments and monthly household expenses.
- If you don’t already have that much savings, you will need to add an additional monthly allocation of some size to build up those savings as quickly as possible.
Is not uncommon for families to find that the total of their expenses plus savings is larger than their combined incomes. That’s why their debt is steadily increasing month after month. For those families, the next piece of debt advice is especially critical.
The Third Piece of Debt Advice – Get Help from a Qualified Debt Counselor
We all have our individual strengths and weaknesses. If the ability to get past your personal feelings of fear and guilt so you can look objectively at your own family’s financial circumstances isn’t one of your “strengths”, spending a little money on the debt advice services of an experienced professional debt counselor is a small price to pay for getting an important job done right. The debt counselor will want to see your credit report (and the credit report for your spouse, if applicable), so you may as well order your credit report(s) right away so you will have them ready. To get started finding a qualified credit counselor, consider these sources:
- Contact your state Consumer Affairs Department for a list of nonprofit credit debt advice providers in your community;
- Your credit card issuer is required to maintain a list of credit counseling organizations in your community. An 800 number must be included in your monthly statement to connect you to those organizations;
- There are several national entities that provide accreditation for credit counseling organizations and individual credit counselors. Find the contact information for those accreditation organizations at your library or the Internet. They will be able to provide you with sources of debt advice in your area.
Before selecting a credit counseling organization, is a good idea to run one or two possibilities past your community’s Better Business Bureau. Then visit their locations in person to get a feel for the organizations, and hopefully meet the credit counselor you will be working with. An experienced debt counselor can provide a number of very valuable services, including:
- Helping you transform the raw data you assembled on your debt, expenses, and income into a livable family budget with an allocation for both savings and debt reduction;
- Providing access to training courses and materials to strengthen your financial management skills;
- Advising you on how to contact creditors to request lower interest rates or extended payment terms;
- Explaining the range of debt reduction tools that may be available to you including debt consolidation loans and participation in a formal debt management plan (DMP);
- Helping you to understand your credit report, and the steps you can take to strengthen it over time;
- Providing referrals to other agencies that provide services ranging from nutritional assistance, to help in avoiding foreclosure on your home.