US credit card debt: How to bring it down further

According to a recent study, credit card debt dropped nationwide by $93 billion in 2009. Though this is good news enough, one should know a hard fact. The industry experts are of the opinion that the charge-offs reached at its highest rate in the later part of the year.

The use of credit cards has been under scrutiny since the recession set in. After scrutiny it was found that 90% of the decrease in credit card debt was because of bad debt being charged-off. This write-down reached a record level in February, 2009. It reached to a level of 8.82%, which is 300 points higher than that of 2008. Thus, in reality the total decrease in debt is only $10 billion.

On an average, each American household has about $10,700 in credit card debt and 9 credit cards in total. According to the Federal Reserve Bank of Boston, about 56% of the consumers have been carrying unpaid balance on their credit cards in the last 12 months. Even the delinquency rate has increased. It had already crossed the 6% mark in February last year.

How to keep credit card debt under control

Customers can keep their credit card debt under control, provided they change their way of thinking and spending habits. Most of the people using their credit cards think that they are using their own money. However, this is not the fact. Credit cards are simply borrowed money, which one needs to return to the creditor. People should first learn to handle their credit cards responsibly. In addition, one should also be aware of the New Credit Card Act, 2010.

According to the New Credit Card Act, a creditor is required to serve a 45 days’ notice before any increase in interest rate or change in certain fees or terms of the card. Moreover, creditors cannot increase the interest rate within 12 months of having offered the card. However, there is no limit on the increase in interest rate. That is, the Rule does not mention by how much can the interest rate increase. Thus, it is better to avoid defaulting on payments.

Another thing that can considerably bring down U.S. credit card debt is rise in employment. People mostly default on their credit card payments due to unemployment. Only if people can get proper employment, they will have the required money to pay down their debt. Other than this, each and every person needs to save more money and spend less. It is advisable to build savings which can be used at the time of emergencies. A person should make a list of all the credit card accounts he has. One should not go for impulse buys.

Rather than using unsecured credit cards, it is better to use secured credit card or debit cards. Unlike credit cards, in secured credit cards and debit cards one has to deposit a specific amount of money before using it. Even if one fails to make payments on a secured credit card used for purchases, creditors can get back their money by withdrawing the amount deposited. So, if you have a secured card and you’re already in financial hardship, you’ll not have to shell out extra money to pay back your creditors.