Of all the financial-related things consumers are concerned about – making ends meet, saving for retirement, putting money away for kids’ college – the biggest worry is credit card debt, according to a survey from FICO, creator of the well-known credit score.
Federal statistics, however, show that the amount of credit card debt has steadily increased throughout 2012, which brings some question about consumers’ financial priorities.
TransUnion, one of the major credit bureaus, expects that credit card debt will continue to increase throughout 2013, especially as credit card issuers begin to grant credit more credit to nonprime borrowers. For several years after the mortgage meltdown and credit crunch, it was difficult and often impossible for consumers with poor credit to get approved for new credit cards and loans. These borrowers are getting credit cards again and, if the past really is a predictor of the future, they may come into credit card trouble again.
The solution to worries over credit card debt is to pay off the balances instead of creating more. Unfortunately, many consumers are planning to do to the opposite. Half of the respondents to FICO’s survey said they plan on using their credit cards for holiday shopping. Almost 25% of these people admitted it will take them more than three months to pay off their balances. By comparison, in 2010, 18% said they’d need more time paying off their holiday balances.
Credit card debt can be eliminated, but first, cardholders have to stop using their credit cards to create more debt, holidays or not. Switch to a cash only system. If you don’t have the cash to make a purchase, then you can’t afford to purchase it. Then, pool your resources, cut your expenses, and pay as much money as you can toward your credit card debt. Close your accounts if you have to and resist the temptation to reopen old.
It’s also important – during the holidays more than ever – to turn down retail credit card offers. Undoubtedly, customer service representatives will encourage you to sign up for store credit cards. On big purchases, the 10% or 20% discount you’ll receive will be almost irresistible. But, considering so many people will take several months to pay off their credit card balances, the discount will likely be negated by the interest charged on the account.
You can save a comparable amount on your purchase by seeking out coupons and other deals before you go shopping. Print the coupons before you leave home. Or, if you have a smartphone, you can pull up the coupon or screenshot it and present it to the clerk at checkout time. These are great tips for saving throughout the year, not just during the holiday season.
On the plus side, 80% of survey respondents who said they’ll use credit for holiday shopping plan to use less than 25% of their credit limit. This isn’t only good news for credit scores, it also means that credit card balances will remain at a manageable level.
If you charge up balances during the holiday season, take a long break from credit card charges at the start of the next year. Give yourself time to pay off your current balances before you think about charging anything else. As you start to eliminate your credit card balances, your worries about credit card debt will start to fade, too. And once your credit card debt is gone, you can start focusing on other big financial goals.
Source: FICO.com, MarketWatch.com
