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(AP) Here's an ominous statistic:
The number of credit card holders who were seriously behind in
their payments set a record in the final three months of 2003.
In a report last week, the American Bankers Association
said delinquencies - payments more than 30 days overdue - soared
to 4.43 percent in the quarter, up from the previous record of
4.09 percent set the quarter before.
An ABA economist said this was especially noteworthy
because delinquency rates on all other consumer loans, including
home equity, personal and auto loans, had fallen.
Why are credit cards giving consumers special
trouble?
Because people use them to make ends meet when
they're unemployed, and the "jobless recovery" has forced
more people to go this route, the ABA said. Also, cards are now
accepted for things that used to require checks, such as rent
and utilities.
Of course, you might wonder whether the ABA's
members have encouraged card abuse by promoting easy credit and
burying cost disclosures in fine print.
How do you know if you're headed for credit card
trouble? There are some red flags, the ABA says:
n You routinely make only the minimum payment
required on your card debt.
n You find you're constantly out of cash.
n You're late with other bill payments.
n You're taking longer and longer to pay off card
balances.
n You borrow from one lender to pay another -
by using the "balance transfer" feature to shift debt
from an old card to a new one, for example.
Getting free of excessive card debt is like shedding
pounds - ultimately, it depends on self-control. But, just as
you don't stock the pantry with doughnuts when you're dieting,
you can make debt reduction a little easier by leaving your credit
cards at home, so you don't rack up new charges.
Instead of paying with a credit card, use cash,
checks or debit cards, which work just like credit cards but deduct
payments from your bank account. That way, you don't risk having
to pay finance charges.
In tackling your debt, start with the accounts
that charge the highest interest rates. Put together a plan for
making regular payments to eliminate your debt in a specific amount
of time. Look for ways to cut spending so you can make bigger
debt-reduction payments.
Beware of offers for home equity loans that can
be used to pay off card debt. These sound great because the interest
rate on an equity line of credit can be quite low and is tax-deductible.
The problem is you may end up paying interest for much longer.
Experts say people in debt trouble should talk
to their creditors. You might be able to negotiate a lower interest
rate or more time to pay.
Filing for bankruptcy is a solution only when
all else fails. Sure, bankruptcy may wipe out your debts, but
there are severe long-term consequences. Afterward, it could be
nearly impossible to get a mortgage or other loan, for example.
People in debt trouble can benefit from counseling
organizations that consolidate debts, reduce overall interest
rates and negotiate with creditors. But consumer groups and regulators
warn against doing business with outfits that promise immediate
results, charge high up front fees and don't offer financial education
as part of the package.
To find a credit counseling organization, use
the referral service of the National Foundation for Credit Counseling:
www.nfcc.org, (800)388-2227.
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