Banks and credit card companies continue to flounder, and do we ever feel their pain! First, taxpayers were recruited to fund the $700 billion TARP bail-out. Then banks began to pass on the baton of continuing losses to unwitting credit cardholders, raising credit card interest rates to near astronomical levels.
Cardholders of Citibank, Chase, and Capital One, for example, in early 2009 were notified that their credit card APR had increased, in many cases almost doubled, to 22.99% or more–only a few points shy of a punitive 29.99% default rate. No one, it appeared, was spared—even cardholders with good credit who’d never had a late payment.
Sure, you can protest by canceling your credit card. But generally, that hurts you more than the credit card issuer. First of all, you have to pay off the outstanding credit card debt before you can cancel the card. Secondly, each time you cancel a credit card, it negatively affects your debt-to-credit ratio, which in turn lowers your credit rating.
If you, like many consumers, are caught with a credit card balance running up interest charges at a dizzying speed, welcome to the club. Now that the days of easy credit are over, millions of credit card users like you are stuck wondering just exactly where they went wrong, and how to get out of this bind.
Higher interest credit card debt is toxic for your financial health. Firstly, it will cause your minimum payment to increase, sometimes even double. Secondly, due to the black magic of compounding interest, high interest credit card debt can enslave you in debt for a very, very long time.
Knowing how to deal with high interest credit card debt can make a big difference for your long-term financial health. Most people default to certain predictable reactions when faced with debt they have difficulty paying off. Unfortunately, these reactions are the exact opposite of what they should be doing. Here are three things NOT to do if you are struggling credit card debt.
1. Don’t Try to Muddle Through Somehow
Most people who get caught with high interest credit card debt try to scrape by paying the minimum on their credit cards every month. Unfortunately, paying just the credit card minimum almost ensures that you’ll never get out of debt, or at least that you’ll be paying it off well into your old age. To understand just how expensive it is to pay just the minimum, see our article, Why You Can’t Afford to Pay Your Credit Card Minimum.
2. Don’t Just Ignore the Beast
It’s human to avoid dealing with something unpleasant. Denial can work wonders at times, but in the case of credit card debt, it will cost you dearly. Instead, use that time-tested magic trick for dealing with monsters, ogres and other unpleasant things, such as credit card debt: Look the beast straight in the eye.
The earlier you take steps to manage your credit card debt, the easier it will be for you to neutralize its impact. More options will be available to you and it will be easier to find real solutions. If you wait until you have late payments and your credit is shot, many doors will have closed. You’ll be left with fewer options, and they will be much more unpleasant.
3. Don’t Try to Go It Alone
When it comes to getting out of debt, knowing what to do can make a big difference. If your debt obligations are threatening to put your finances into a tailspin, seek help. A credit counseling professional can help you develop a step-by-step plan for getting your finances under control. For more advice on how to find a trustworthy debt counselor, see the FTC’s recommendations for How to Choose a Credit Counselor.
To learn about how to get rid of your credit card debt, see the following article:4 Tips for Dealing with High Interest Credit Card Debt
