With the average American saving around 3.3% it seems like getting out of debt could be difficult. However, in a recent article author Laura Rowley points out,
If savings behavior isn’t changing, consumer attitudes may be. A recent Gallup poll found 62 percent of Americans say they enjoy saving more than spending, while 35 percent reported the reverse. Back in 2006, respondents were split about 50-50 on the question. Moreover, 57 percent say they are spending less money in recent months than they used to, up from 50 percent last July. Among the newly frugal, 38 percent say this spending pattern is the “new normal,” while 19 percent say the budget cuts are temporary.
Rowley goes on to explain that the average American can significantly reduce their debt by using a small portion of their extra income to pay down their debt. In her example she points out that one home owner was able to save $23,900 over the life of the loan by paying $35.86 more a month towards his home loan.
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Maybe you’ve made a credit mistake or two, but there’s no reason to freak out. Here are the three common problems people make, as well as what you need to do to solve them.
Problem No. 1: Opening too many credit accounts. Ah, this is a common one. You may have applied for credit randomly, causing your wallet to burst with plastic. It also resulted in the ability to charge and (temporarily) live far beyond your means. Without enough cash to pay for what you wanted, those open lines of credit probably made buying what you couldn’t afford too easy.
Solution: If you have any active lines of credit left, review them and decide on a couple that you want to keep. They should be accounts with the lowest interest rates and other favorable terms. Tuck the others away in a safe place, or if you feel you can’t control overspending, close them entirely. In the future, only apply for the credit you require and won’t abuse. The average person needs just a couple of accounts — a general purpose credit card that you can use anywhere, and perhaps a retail card at a store where you regularly shop.
Problem No. 2: Letting debt escalate. A $10,000 total liability is not unusual, but it’s a hefty sum for one person to repay quickly. You know this now, but while you were using the credit cards, you needed to have kept your eye on the ball (er, bill). Certainly you didn’t get to that figure overnight, and the moment you discovered it was getting out of control you should have stopped charging and focused on repaying the balance.
Solution: When you do use credit again, you’re going to have to make sure your debt never gets out of hand again. To do that, always check your balance before charging. If you know you’ll have enough money to pay for everything you charge in full without neglecting your essential expenses, great — go for it. If not, put the card away.
Problem No. 3: Reneging on your contract. If you have arranged a hardship program through a qualified credit counseling agency, your creditors will probably report you as delinquent, since you’re not making the originally agreed-upon minimum payments. On the other hand, if you are settling the debt by negotiating the balance with a debt settlement company, you will also see credit damage because you are paying less than the total owed. It will be notated on your credit report as “settled,” which is much less desirable than “paid in full.” Why such damage? You’re reneging on a contract. When you got the credit card, you promised to pay according to their terms. When you don’t, you get dinged.
Solution: If you are using a hardship plan, resume minimum payments again as soon as possible. In the event you’re with a debt settlement company, the accounts have likely gone into collections, so you may as well continue and get the financial break. The prescription for both of these scenarios is basically the same: Wait for notation to age — after seven years, the negative information will drop off the reports (and after a couple years it will become considerably less important) and start to use credit responsibly now. By charging regularly, and paying on time and in full, you’ll establish a positive credit history as you’re waiting for time to work its magic.
Erica Sandberg’s articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.
According to the NY Times: “the number of food stamp recipients has climbed by about 10 million over the past two years, resulting in a program that now feeds 1 in 8 Americans and nearly 1 in 4 children.”
This offers a brutally realistic view of the state of our economy, with most areas experiencing 100% growth since 2007 in food stamp usage. States like Michigan, Oregon, and Maine along with much of the south are currently seeing food stamp usage climb in excess of 20%.
The government of North Korea has decided to devalue its currency at an exchange of 100 old Won to 1 new won. Allegedly an attempt to punish those that have profited from the black market, the government is limiting the amount each resident may exchange to $150,000 won. This limit has caused stores, restaurants, and all other forms of commerce to close until the new currency takes effect. It has also led to at least 2 suicides as residents deal with the harsh reality that their life savings has been reduced to at most, $150.
This act is not unique to North Korea. Many countries including Argentina have replaced currency in the past in order to curb inflation.
Rowley goes on to explain that the average American can significantly reduce their debt by using a small portion of their extra income to pay down their debt. In her example she points out that one home owner was able to save $23,900 over the life of the loan by paying $35.86 more a month towards his home loan.
photo credit: dieselbug2007 on Flicker
Budgeting, Credit Card Debt, Debt Management, Payoff Mortgage 
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