Credit Woes

By Amy Winter

October 19, 2007 6 min read


Consumers tend to overspend when shopping with cards

Amy Winter

Copley News Service

Abused and overused, credit cards are a means of postponing payments.

But this purchasing method may come back to haunt the consumer, especially when the number of cards and payments pile up. Consumers spend approximately 20 percent more at retail stores when shopping with a card, according to "Ultimate Guide to a Better Credit Score" (InCharge Education Foundation, $19.95).

"Many people use credit for inappropriate reasons," according to the guide. "They see a 'needed' goal and credit seems to be an easy way to achieve it."

Acting as an instant way to purchase items, credit is a less guilty method of spending unavailable money. Stuart Laing, founder of the site "I Can Help You Get Out of Debt," feels consumers experience debt because they spend more on cards; they don't have "to cross the psychological barrier" experienced when paying cash. Sliding a card is easier than pulling out a wad of bills.

"There's also the time delay between spending the money and receiving the bill," says Laing. "It's often six or eight weeks before you are billed for your purchases. By which time it's often too late to return the purchases that you regret to the store."

Credit card access has become much easier for consumers. Companies now target those who need money but are least likely to return it, such as college students, the unemployed and part-time workers, according to "[email protected] Debt: Take Control of Your Money - A How-to Guide" (Warner Business Books, $12.95). In 2003, 1.3 billion credit cards were in U.S. circulation, and credit card debt amounted to $743 billion. An average credit card user owes $7,500.

David Alecock, vice president of the nonprofit credit agency, InCharge Debt Solutions, says the starting point to becoming debt free is to stop spending. Pause in order to gain a realistic look of how you are going to pay off the bills. Next create a budget chart by writing down the balance of each bill, including the interest rates. And pay the bills on time to avoid late fees. InCharge recommends avoiding cards with high interest rates. If you do have debt on these types of cards, pay the minimum rate plus an additional amount. Give the minimum amount for the low interest rate bills.

Set weekly and monthly budgets and create financial goals. "[email protected] Debt" suggests carrying cash and keeping a few cards locked up at home to resist the urge. Charge items that you have the money to pay for.

Call your creditor immediately if you know you won't be able to pay a bill. "Credit Repair Kit for Dummies" (Wiley, $24.99) suggests contacting creditors before you miss a payment. Present the facts of the situation and offer a realistic repayment solution. This plan shows the creditor you are at least trying to make things right. Oftentimes professional help is needed to reduce accumulating debt.

InCharge is an example of a company that provides credit counseling, giving options for your financial circumstance as well as education to plan for the future. Alecock feels the educational component to counseling is key; he refers to it as "ongoing coaching." A counselor may recommend a debt management program that includes more guidance and the incentive to stay with your payment plan. The client pays the counselor who in turn pays each creditor. The last resort is bankruptcy, since it remains on credit reports for 10 years and may restrict you from loans or employment.

"When debt is too high to get out of, there is help," says Alecock. "Organizations are there to provide unbiased help."

Credit card debt doesn't only cause increased payments and more bills; it affects your work and home life. Dealing with the stress of debt hurts job performance and puts a great amount of tension on relationships, according to Alecock. As bills continue to increase due to interest, the situation can become overwhelming. Laing says a lack of freedom is associated with debt. Owing money to creditors means they own a portion of you; "you forfeit a piece of your life." Taking the time to pay the money back also takes away your freedom to spend days as you wish.

"Credit Repair Kit for Dummies" offers these warning signs you need assistance with credit problems:

- Use credit cards for daily spending.

- Obtain cash advances to make payments.

- Pay the minimum or less for monthly bills.

- Receive calls from creditors.

- Fight about money problems at home.

- Waste more than 20 percent of earnings on credit debt.

It is possible to eliminate debt as long as a person doesn't become discouraged and remains motivated. Laing recommends researching interest rates, repayment periods and budgeting before signing up for a credit card.

"Focus on the day when you will eventually be debt free," says Laing. "Imagine how you will feel. Imagine the weight that will be lifted from your shoulders."

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