Credit Card Debt Reduction Can Help Achieve Financial Security
1:58 AM
With the looming financial threats of job loss, income reduction, and a recession, it makes sense that most people have made credit card debt reduction a priority. And it should very well be a priority. After all, this type of debt normally carries the largest costs in terms of interest rates. As well, given the rising rates, credit card debt reduction is one thing we all need to look at more closely if we want to not only weather this economic storm, but to make ourselves financially better off.
In terms of interest rates, the trend has been that they are rising. Considering that back in May 2009 the average card rate was 13.94% and today is a full 1% higher, credit card debt reduction is something that can easily curtail the amount of money we spend on our debt.
Rising rates are not the only reason people should concern themselves with credit card debt repayment. Let's look at credit scores. With revolving credit, people are more apt to see their scores tank because more than 65% of their FICO score is based on two major factors: utilization and repayment history.
Borrowers who do not make credit card debt reduction a priority will normally encounter problems when there is a personal financial setback, such as a reduction in income. When the balance hovers at or near (or even above) the card limit, borrowers will be penalized through their score for having high utilization. To compound matters, if the financial setback is a bad enough and a single minimum payment is missed, the score will suffer even more on account of late payments.
Negative scenarios like these are never fun to explore. Still, we need to hedge ourselves against the three negative economic facts that are going on right now. Again, they are: card rates are increasing; the economy is tough right now and the end point has not been clearly set and; credit scores are more and more important to the lenders we want get credit from. Without question, we need to put a plan for credit card debt reduction in place sooner rather than later.
There are as many reasons why people carry debt as there is for why they do not. However, there is one universal feeling that all debtors and non-debtors share -- that involves financial health and sustenance. With that in mind, it makes sense for people to look at credit card debt reduction now and not when it is too late.
In terms of interest rates, the trend has been that they are rising. Considering that back in May 2009 the average card rate was 13.94% and today is a full 1% higher, credit card debt reduction is something that can easily curtail the amount of money we spend on our debt.
Rising rates are not the only reason people should concern themselves with credit card debt repayment. Let's look at credit scores. With revolving credit, people are more apt to see their scores tank because more than 65% of their FICO score is based on two major factors: utilization and repayment history.
Borrowers who do not make credit card debt reduction a priority will normally encounter problems when there is a personal financial setback, such as a reduction in income. When the balance hovers at or near (or even above) the card limit, borrowers will be penalized through their score for having high utilization. To compound matters, if the financial setback is a bad enough and a single minimum payment is missed, the score will suffer even more on account of late payments.
Negative scenarios like these are never fun to explore. Still, we need to hedge ourselves against the three negative economic facts that are going on right now. Again, they are: card rates are increasing; the economy is tough right now and the end point has not been clearly set and; credit scores are more and more important to the lenders we want get credit from. Without question, we need to put a plan for credit card debt reduction in place sooner rather than later.
There are as many reasons why people carry debt as there is for why they do not. However, there is one universal feeling that all debtors and non-debtors share -- that involves financial health and sustenance. With that in mind, it makes sense for people to look at credit card debt reduction now and not when it is too late.
About the Author:
Chris has more than 16 years of financial services experience. Professionally and through his e-book and personal finances program, Help Fix My Finances, he has helped thousands of people with credit card debt reduction. He debt-free blog, HowToRepayDebt.com helps people with debt management ideas and techniques.
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