Millions of Americans are dealing with issues related to their credit cards and the debt carried on those accounts, which can bring about significant financial problems and issues that can take a while to resolve. However, it's important that borrowers with these credit difficulties know they're not alone, and that there are numerous ways they can deal with their problems.
Many find credit card debt tough subject
Though a large number of people across the country know all too well the issues that can arise as a result of having too much credit card debt, a large number are simply afraid or unwilling to talk about it, and that might make their problems worse. A recent poll found that 85 percent of Americans say they won't talk about their credit card balances with someone they recently met, and that's up from 80 percent who felt the same way five years ago, according to a report from CreditCards.com. This is likely a function of people feeling more like their credit card balances should be a source of shame.
"Before the recession, consumers were encouraged to carry debt, and spending was seen almost as a patriotic thing to do to stimulate the economy," Michael Solomon, professor of marketing and director of the Center for Consumer Research at Saint Joseph's University in Philadelphia, told the site. "Obviously, the recession was a wake-up call. Credit card debt isn't as accepted now; it carries more of a stigma."
In fact, some people now see debt not as a part of a healthy financial life — even when it's handled correctly — but rather as some sort of a personal failing, though young people in general are more willing to reveal details related to their credit card issues than older Americans, the report said. But in some cases, honesty may be the best policy for admitting credit card debt is a problem for borrowers, and the first step in getting it back on track.
Many make simple mistakes when fixing credit
Those who have credit card debt and want to start addressing it in such a way that they can repair credit and get their finances back in order often take a number of steps, including reducing spending on those accounts and making larger monthly contributions into their balances every month. But one mistake borrowers often make during their efforts to reduce balances comes when they pay them down to zero, according to a report from Credit.com. At that time, many consumers who want to avoid the temptation of taking on more debt in the future will close the accounts after cutting their balance entirely, but doing so can have a grave impact on one's finances.
The amount of debt being carried as a percentage of the total limits available makes up 30 percent of a person's credit score, and as a consequence, shuttering any accounts will almost certainly increase what is known as a "credit utilization ratio" significantly. That, in turn, will lower ratings for those who make such a misstep, and have the opposite effect as was intended. As such, consumers who want to maximize their credit scores should aim to have their utilization ratios down to 30 percent or less of their total credit limits, and avoid closing accounts in such a way that they will reduce the total amount of those maximums.
What does having better credit mean?
When consumers take the time to improve their credit ratings, they not only get relief from the bills they might have been paying, but also in the form of more affordable credit going forward. The interest rates enjoyed by consumers who have good or even excellent credit continue to decline, while those for people with fair credit remains somewhat steady, and definitively high, according to a new quarterly survey from CardHub.com. Therefore, having strong credit standings can be a major financial help for many who are trying to get their finances under control, particularly when they seek new accounts. For instance, through the end of the first quarter of 2013, interest rates on credit cards for those with excellent credit was nearly 7.5 percentage points lower than those for fair credit, which can save borrowers a significant amount of money over the course of a year, especially if they continue adding to and subtracting from their balances every month.
Consumers who want to make sure their credit standings are exactly as they should be might also find a benefit in taking the time to order copies of their credit reports and checking the documents over closely. Doing so might help them to discover any potentially unfair markings that may be dragging down their ratings. If any are spotted, it might be wise to contact a credit repair law firm, which may be able to help clear up these issues.