Another Groovy Tool

Think your credit card debt is getting you into further trouble? You may consider curtailing your holiday shopping a bit this year, as the financial experts say many of will do this year. Yours truly will probably be in the same boat. We're all tightening our belts in wake of the near collapse of Wall Street. Don't get me started on my 401K. I'm still relatively young, so at least my near future contributions, which will remain at the same level, will buy MORE shares. More shares translates into more returns later. Am I right? I digress here.

What I was leading to is I stumbled across a credit card calculator online that will give you an idea of how long your debt will take to be paid off. (LINK: http://www.themoneyalert.com/CreditCardCalculator.html) A "friend" has a credit card charged up to $15,000. Yes, I think we all agree that's a lot on a piece of plastic, but he's making progress on it, paying at least $300 a month. The APR on this card is US Prime (current 5 percent). Yes, the "friend" has excellent credit. At last review, his FICO score was 755. Good thing for him.

Making minimum payments of $300/mo at Prime, if it remains at 5 percent, the person in this example can expect to pay $1595 in finance charges along the way, and the debt will be gone in 52 months. A quicker remedy, of course, might be a balance transfer offer to move the debt to a special (lower) rate. ATTENTION HERE: Read the fine print on those babies. Your incredible deal of 0 percent is usually an introductory teaser rate and may come with a transaction fee. The industry standard now is a 3 percent fee. It's hard to avoid that right now.

As we head into the holiday season and 2009, take some time to consider your financial situation and steps you may take to dig yourself out of debt and save money.

Tackling Credit Card Debt

Karen Gross likens excessive debt to a bad hangover. “The last thing you want to do is try to relieve your financial headache with a solution that will be worse than the hangover itself,” says Gross, the president of the Coalition for Consumer Bankruptcy Debtor Education (http://www.debtoreducation.org). Quick fixes rarely work, according to Gross, who offers the following four-step formula for getting on track.

1. Hold your horses, stay calm, and don’t rush into any impulsive arrangements. “Don’t panic,” Gross advises. “It’s essential to pause, take a deep breath, and look carefully at possible solutions.”

2. Examine your situation. While your debt problem may be serious and appear urgent, first get an accurate sense of the extent of your situation. Gross says: “Lots of organizations offer help, but don’t take the first solution that comes along. Take time to assess, compare, and contrast multiple solutions.”

3. List your options, including the pros and cons of each. For example, while a home-equity loan may seem like an appropriate solution, it’s not always the best course of action because it can put your home at risk.

4. Pay at least the minimum amounts due on all of your credit cards. This last step is critical because of the “universal default” clause, which permits a credit card company to raise your interest rate if you’re late on another company’s credit card or any other outstanding loan. Lenders argue that it’s logical to raise rates for a consumer who has shown evidence of becoming a greater risk. (Scott's note here: Not all credit card companies will raise your APRs if you've been bad on another bank card.)