ConquerYourDebt.com

If you still haven’t caught on to the evil actions of credit card companies, perhaps this article from the Chicago Tribune will help clarify the situation.

Those disclosure notices you’ve been getting with your credit card bill, the ones written in tiny print, are warnings of changes that could cost you money.

Financial institutions have been bumping up interest rates in reaction to Federal Reserve Board hikes, but now they are tinkering with minimum payment amounts and grace periods.

“Like all of corporate America, they are trying to grow profits in any way they can,” said Greg McBride, senior financial analyst for Bankrate.com. “Not one of the changes works for the benefit of the cardholder. It all works for the benefit of the company.”

Read the full story

I’m not ashamed to admit that I used to be a slave to my cards, but for me it took a quick calculation one month of just how much we were paying each month just covering the minimum payment to realize what we could be doing with all of that money.

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Judging from the ways people are finding their way to this site from the search engines, it seems that there are quite a few people who are in the same boat I was and looking for help in paying off their credit cards.

While the plan we used to pay off our debt is not rocket science, it did take a monumental change in our approach to money to even begin to think about our end goal.

The plan we used was based upon the book The Total Money Makeover: A Proven Plan for Financial Fitness.

In a nutshell, the plan is broken down into a series of baby steps.
1. While making minimum payments, put together an emergency fund of $1000 (essentially to break the cycle of using credit cards for emergencies).
2. List your debts from smallest to largest, pay the miniums on the larger debts and throw every dollar you can scrape together at the smallest. As you pay one off, move to the next debt in the list. (a series of small wins will give you a sense of accomplishment and keep you motivated).
3. When all of your debt except your house is gone, fully fund your emergency fund with 3-6 months worth of expenses.

The book then covers remaining steps for investing for the retirement, saving for college, paying off the house, etc.

On a side note, he also has a popular radio show. You can listen online, or download the previous two weeks of shows, or download a 1-hour commercial free podcast from the previous day’s show at: DaveRamsey.com.

There is also a support site for his book: MyTotalMoneyMakeover.com.

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By this time next year, your minimum monthly payment for your credit card(s) will double. The federal government is requiring all banks to raise the minimum monthly credit card payment from 2% to 4%.

Consider a family with three credit cards all with interest rates of 16 percent, which is a standard rate.

Card #1 has a $2,500 balance. At two percent, the minimum monthly payment on is about $50 dollars–$33 goes toward interest; $17 to principle. At four percent, the minimum monthly payment doubles to $100, $33 still goes to interest; but $67 goes toward principle.

Card #2 has a $6,000 balance. At two percent, the minimum payment is $120 with $40 going to principle and $80 to interest; at four percent it’s $240 with $160 going to principle and the remainder to interest.

Card #3 has a $10,000 balance. At the new 4 percent minimum, the $400 payment would cover $267 in principle and $133 in interest.

While the family would be paying off their balances much faster, their monthly payments would double from $370 a month to $740, something that many would probably find difficult to afford.

Then consider that most families have 5 to 8 credit cards.

Read the full story.

While this might just be the kick in the pants some people need to pay off their credit cards balances faster, it could be a scary proposition to those who only make their minimum payments. Escpecially when you consider only one in six families pays more than the minimum due every month.

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It’s no joke. American consumers seem to be turning the corner on credit card debt and wisening up to the dangers of what has become “normal.”

But all is not tulips and nectar over at MBNA, the largest independent issuer of credit cards. Yesterday it reported a poor quarter and ratcheted down earnings expectations for the year. Its stock sank to a two-year low. Credit card giant Capital One Financial had a better quarter, but its stock has been slumping lately, too. Bad news for the credit card companies may be better news for us. There are signs at both companies that consumers may be responding to higher rates by doing something almost completely unexpected and practically un-American: paying down credit card debt.

If you are still in the dark as to what the credit card companies expect from their customers, the following should give you ample insight:

The credit card industry presumes, based on happy experience, that Americans will borrow more money each quarter to support their spending habits, regardless of the direction of interest rates, and that enough consumers will be happy simply to pay off just enough debt to allow them to borrow more.

Read the full story at Slate.

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I put a feeler out to friends and family to keep an eye out for advice from their banks, credit cards, financial planners, etc. This tip was brought to you by Providian Financial.

Monthly Credit Tip
High levels of debt have you singing the blues? Work to reduce your balances by creating a budget and starting with the highest or most expensive debts. Lowering your debts can save you in interest and could also help improve your credit score.

While on the surface this appears to be good advice, for the average person this simply won’t work. Human beings require feedback and accomplishments to keep themselves energized and focused on a goal. A better way to do this would be to create the budget and list out debts from lowest to highest. Then start knocking them out in that order. Each time you knock out a smaller debt, you’ve taken a big step towards your goal and you then roll what you were paying on the smallest debt into the payments to the next debt on your list; working you way through until they are gone. This is also commonly known as working the debt snowball.

I realize that there it is a valid point that you will be continuing to accumulate more interest on the bigger debts, but for the average joe, working and working on a large debts without ’seeing’ some immediate results might be enough to push them back into old habits. Additionally, if the goal is to become totally debt free, the amount of interest on the large balances will be negligible when you consider that the average household has the means to become totally debt free within 12-24 months (with exception of home mortgage).

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