Consumers addicted to plastic?

Consumers addicted to plastic?
Families carry average credit card debt of $8,000.

TOUGH TIMES

By YaVONDA SMALLS
Tribune Staff Writer

$8,000.

That's how much the average American family is said to carry in credit card debt.

If they pay the minimum on this balance every month, it could take more than 20 years to get out of the red. That means two decades from today, you could still be paying off that DVD player, laptop computer and shirt you bought in the heat of the moment last Christmas.

It's an overwhelming reality for the many consumers who have fallen victim to a buy-now, pay-later society, where people take out loans and carry multiple credit cards without giving it a second thought.

"It piles up so quickly, I think, especially when you're young," said South Bend resident Kelly Sanford, who said she learned her lesson after tasting her own share of credit card debt in the past.

"You get one of those credit cards that have a low introductory rate and, before you know it, it's up to 27 percent."

Throw in the nation's mortgage crisis, rising oil and food prices and the stock market's volatility, and it's no wonder consumers are sinking deeper into a sea of red.

Fortunately, whether you're a few thousand dollars or half a million dollars in the red, you can take steps to rise above it, experts say:

-Set up a budget. First, don't wait until 2009 to start setting up a household financial plan that is accurate, comprehensive and reflective of all your debt, says Amanda Walker, manager of GreenPath Debt Solutions, which has offices in Mishawaka and Elkhart.

Add every individual debt together to determine your total debt, and mentally commit to changing your past or current spending patterns by adhering to your budget. For many consumers, budgets are vital because they provide a good reality check of what's happening right now and ways to best prepare for the future, Walker said.

Granted, budgets aren't always fun, but neither is foreclosure, she said.

-Track your cash. Take your monthly income minus expenses to see how much extra money is left at the end of the month and whether a surplus can be used to pay additional credit card payments. If you see a deficit, decide what expenses you can realistically cut, such as daily coffees and eating out. Also don't hesitate to drive your car an extra year, said Sanford, the South Bend resident.

-Say "no" to credit. Don't borrow more credit to pay off a credit bill, and consider a credit card hiatus while you're trying to climb out of the red. Lock your cards away, or cut them up, until your debt is more manageable.

That's because surveys done by Consolidated Credit Counseling Services indicate consumers are likely to spend more using a credit card than when paying in cash.

"I don't have a credit card — I just have a debit card," said Saint Mary's College nursing student Caitlin Fitzpatrick. "I do know people my age with credit cards who are in tremendous amounts of debt. I just think it's kind of dangerous."

-Chip away at old debt. Make your biggest payments on debts with the highest interest first, and pay more than the minimum on your loans, says LendingTree. Also be sure to earmark end-of-year bonuses, raises and income tax returns for paying off debt, too.

-Prioritize payments. Set aside money first for debt repayment and then budget for things such as saving for college or retirement, before spending on discretionary items.

-Be realistic. Remember that while your goal is to fully pay all of your bills on time, it isn't always feasible. So if you must make a choice when it comes to bills and credit cards, pay on loans secured by collateral first, such as mortgage and vehicle loans. Then pay off utility bills, insurance, loan payments and household expenses such as groceries and gasoline. Pay off unsecured credit card accounts and medical bills last.

-Lower your interest. If your credit score is good, and you're receiving a variety of low-rate offers, consider transferring your balance to a lower-interest card while you work to pay off the debt.

Also, don't hesitate to negotiate a better deal with your lenders, who often would rather you get back on track than see you file for bankruptcy.

-Weigh the pros and cons of debt consolidation. Consolidating many debts into a single loan can reduce your number of payments and creditors, making managing your money and financial planning much easier.

But it can cost more in the long run. Most consumers end up paying for the debt over 10 to 30 years, spending more than they would have had they kept each individual loan.

-Check your credit reports. This report tells you about any outstanding debt you owe, according to Debt Reduction Lessons. You can typically request a credit report for free every year from the three major credit bureaus — Experian, Equifax and TransUnion.

Staff writer YaVonda Smalls:
yavsmalls@sbtinfo.com
(574) 235-6248