With so much bad news on a national level regarding the economic worries in the U.S., the individual consumer can sometimes get lost in the fray. While we have heard the nationals statistics on the growing debt, and we know full well the problems many of the global banks are facing, what we’re missing, it seems, is how Mr. and Mrs. American Consumer is faring.
With that thought in mind, we pooled a few resources and picked the brains of a few credit counselors – and one attorney. What we discovered was enlightening – and many consumers, ideally, will be able to not only relate to the stories they told, but also benefit from the advice they provided.
Prioritizing Credit is Still Problematic
Our counselors, located in Mississippi, Texas and Ohio, all agree that irresponsible use of credit cards remains in the top three reasons for bankruptcy. Medical debt is perhaps the only other universal problem consumers are feeling. Part of the reason behind the irresponsibility is because consumers – especially younger consumers – simply don’t understand the terms and conditions associated with credit card contracts.
Believe it or not, we have college graduates struggling with understanding how revolving credit works,
said Michelle Thompson, a certified debt counselor in Greenville, Miss.
People believe the minimum payments made on time is all they need to do in order to protect their credit. While maintaining those minimum payments won’t cause problems in and of itself; it does, however, result in other problems. Consumers who make the minimum payments are far more likely to go over their credit limits – which can cause drops in credit scores, along with late fees.
This can sometimes set off a series of other problems that can haunt them for years. Think about it – if you go over your limit and are still only making minimum payments, those payments may not even be covering those late fees – resulting in the start of that proverbial vicious cycle.
Bailing Often Means Legal Action
Understand this – credit card companies, banks, finance companies – they are all entitled to seek legal solutions for consumers who simply stop paying and refuse to communicate with the creditors. Jeff Tompkins, an attorney who specializes in debt management and who represents credit card companies, said his business is thriving.
Here’s the thing – I don’t represent a single bank that wasn’t open to redefining the parameters of a contract. The last thing any credit entity wants is to bring lawyers into the game. It’s not because they have a weak cases, but it’s costly and time consuming for them.
Not only that, but if the consumer loses in court, he may be responsible for any court costs or other legal fees associated with the case.
A consumer’s best option is to not break contact with a creditor. If you’re struggling financially, there’s not a debt counselor out there that would encourage a consumer to just dismiss communication efforts from a creditor. In fact, consumers should make it their business to establish and maintain contact. This is when payment arrangements can be made that allow repayment opportunities and fewer sleepless nights.
Priorities are Hard
Americans, especially in the past few years, have found themselves struggling to cover their monthly expenses. The mortgage is top priority, of course. Then, because they need to get back and forth to work each day, they ensure the car payments are made. If they were laid off and took a lower-paying job, keeping up credit card payments falls below the mortgage and car payments in the list of priorities. They’re often then hit with higher APR rates on those credit cards, which means they’re even further behind. It’s little wonder so many are feeling exhausted and overwhelmed these days.
Creditors will often step in with possible solutions. For instance, a credit card company may be willing to offer a discount if the account is paid in full within a specified time period. It’s a way for all parties to resolve the account without taking legal action.
Don’t Add Fuel to the Fire
Many folks will apply for a balance transfer credit card with the goal of moving several balances onto one credit card. While this might have worked for some, it’s often not recommended, especially by credit counselors. Lee Griffin, a certified debt counselor, said just as often, this financial move only makes things worse.
Commit to Change
All three of our financial experts agreed that making a commitment to pay off debt is the first step in really turning things around. Approach it with an open mind and one that’s determined to climb out from under these financial problems. Once you’ve accomplished that, you move forward with a lot of hard lessons learned well. Finally, they encourage consumers to reach out to credible counselors if they feel as though they’re sinking fast with no other options.
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