Keeping a handle on credit card debt

Guest post for your consideration; my commentary included below:

According to statistics released by debt negotiation company Golden Financial Services, credit card debt in the US now stands at $748 billion – a five-year low, down from $900 billion in 2008.

Paul Paquin, CEO at Golden Financial Services, believes this decrease can be attributed to “the fact that banks now have stricter lending policies”.

“Consumers are more likely to get denied for a credit card if they have a low credit score,” Paquin explained. A company like Crediful.com can help.

However, according to credit bureau TransUnion, things are about to change. TransUnion statistics show the average US credit card holder had $4996 in credit card debt between July and September 2012, and that figure is set to grow.

The credit bureau predicts a growth in average credit card debt throughout the US in 2013, possibly reaching $5446 per cardholder by the end of the year.

TransUnion has attributed this predicted growth to the increasingly relaxed lending policies of banks and card providers who are willing to offer credit cards to customers who are less likely to be able to pay off their debts.

This also leads TransUnion to predict a rise in the number of cardholders who are in excess of 90 days overdue on their credit card bills.

What does this mean for you? Well, if you are looking for a credit card and you have a low credit score, it could mean you can now get approved. But does that mean you should sign up, just because you can?

While having a credit card can certainly come in handy, allowing you to buy things when you don’t have the money to pay for them, therein lies the danger. If you don’t have the money to buy stuff – maybe you shouldn’t be buying it.

However, keeping to a few rules can mean a credit card can be an asset instead of a danger. First up, you need to work out what you can afford. Before you spend on your credit card, be sure you can pay it back.

Next, you need to choose the right credit card. While fancy rewards cards and credit cards with bonus features can seem like a good idea, they can also charge high annual fees and interest. If you carry a balance each month, you do not want a high interest card. Opt for a low rate credit card instead.

If you’re having trouble working out which credit card is right for you, try using a credit card calculator and a comparison website.

Lastly, you need to make a commitment to paying off your bill. If you want to a credit card to work for you, it’s important to pay it all off at the end of the month – or as much as you can manage. If you only make the minimum payment, you could be in debt for decades.

Darwin’s Commentary: As outlined in the article, I’ve found too that you often get what you pay for (or nothing’s for free), so if you snag a card with top “rewards” it probably also comes with a much higher interest rate.  At the same time, why bother worrying about rewards on your card if you have a balance and want to pay it down.  The interest rate would greatly outpace the benefit of any rewards (usually in the low single-digits), so if you’re in that boat, searching out the best low rate card does in fact make sense.