Post by LIFE AND DEATH on May 16, 2005 12:49:26 GMT -5
Consumers, beware! Recent Federal Reserve Board rate hikes could prove costly if your credit card debt is spiraling out of control, financial advisers say. They’re warning that now is the time to start managing your debt before it gets out of control.
For many cardholders, the Fed's decision last week to raise the interest rates that banks charge each other to borrow money by a quarter percentage point will translate to higher credit-card charges. That's mainly because when banks have to pay more for credit the pass the charges on to you, the credit card costomer. You could feel a pinch or a nudge, depending on how good a credit customer you are.
But another factor pushing up credit card rates is the growth in delinquencies. Paralleling the rise in rates is the number of people behind in their payments, according to the latest figures from the American Bankers Association. About 4.28 percent of card accounts were overdue in the second quarter, up from 4.21 percent in the first quarter.
One reason for the increase in over-due payments is that banks and financial institutions have made it easier to get credit cards and mortgages, enticing new costomers with offers of low introductory rates, says Craig York, a financial counselor with Operation Hope, a California-based financial literacy group. But there are other factors, too, including job loss and the imbalance between the growth in expenses and stagnant salaries, he says.
"While gas prices and interest rates have gone up, our salaries have not matched the increases,” York says.
Other experts concur.
“Household budgets continued to suffer from high gas prices, which took precious resources away from meeting credit obligations," ABA Chief Economist Jim Chessen told CBS’s Market Watch. "Job growth, while promising, still seems unsteady. Getting people back to work is the single most important step toward improving overall consumer financial health."
Even small credit card interest hikes can zap your monthly budget.
If you have $1,500 in credit card debt at 18 percent interest your monthly minimum payment could be $25. But, if your rate jumps to 28 percent, your minimum could shoot up to $35 to $55 a month.
“For low-to-moderate-income workers struggling to make te payments, the extra $20 to $25 a month can make a huge difference,” York says.
Additionally, he explains, a rate hike of a few points could cost you thousands over the debt pay-down period. A $1,500 credit card bill could take 27 years to pay off if you’re just making the minimum monthly payment. At 18 percent, your $1,500 would cost you $7,261 in interest charges before it’s all paid off. At 28 percent, interest costs shoot up to $11,206.
Worried about your debt? Here are some tips from Operation Hope to help your avoid credit card woes, particularly since, by all indications, interest rates will continue their climb for some time to come.
* Live on a budget. If you budget your money and are disciplined, you’ll realize the extra payments won’t fit into the budget.
* Pay more than the minimum. Don’t charge anything you can eat or burn, such as gas or groceries.
* Save your credit cards for emergencies such as if your refrigerator or the transmission in your car goes out, or for planned purchases such as vacations or re-carpeting your house. Even then, budget and pay off the balances as soon as you can.
* Budget. For next year’s Christmas spending, decide on a budget with your family, including everything from the cost of a tree and ornaments to the number of gifts. Then put aside $50 or so each month into a Christmas fund.
* Negotiate for A Better Rate. If you’re headed for trouble but have good credit, try to negotiate a lower interest rate with your credit card company. If you’ve been paying on time, you can let your credit card company know that another company is willing to offer you a lower rate.
* Transfer to a lower rate card. Before you do, read the fine print. Make sure that the long-term rates won’t increase your payments any more than you’re paying now. Watch out for te low-interest introductory offers. After they expire, you could find yourself at a higher rate than you were paying on your old card.
* Consult a debt counselor. If you’re already in trouble, talk to a debt counselor. Often he or she can halt late fees, write letters to finance companies and get you on a reasonable payment schedule. However, make sure the counselor is one that doen't charge crazy fees or pocket a good deal of your monthly payment.
For many cardholders, the Fed's decision last week to raise the interest rates that banks charge each other to borrow money by a quarter percentage point will translate to higher credit-card charges. That's mainly because when banks have to pay more for credit the pass the charges on to you, the credit card costomer. You could feel a pinch or a nudge, depending on how good a credit customer you are.
But another factor pushing up credit card rates is the growth in delinquencies. Paralleling the rise in rates is the number of people behind in their payments, according to the latest figures from the American Bankers Association. About 4.28 percent of card accounts were overdue in the second quarter, up from 4.21 percent in the first quarter.
One reason for the increase in over-due payments is that banks and financial institutions have made it easier to get credit cards and mortgages, enticing new costomers with offers of low introductory rates, says Craig York, a financial counselor with Operation Hope, a California-based financial literacy group. But there are other factors, too, including job loss and the imbalance between the growth in expenses and stagnant salaries, he says.
"While gas prices and interest rates have gone up, our salaries have not matched the increases,” York says.
Other experts concur.
“Household budgets continued to suffer from high gas prices, which took precious resources away from meeting credit obligations," ABA Chief Economist Jim Chessen told CBS’s Market Watch. "Job growth, while promising, still seems unsteady. Getting people back to work is the single most important step toward improving overall consumer financial health."
Even small credit card interest hikes can zap your monthly budget.
If you have $1,500 in credit card debt at 18 percent interest your monthly minimum payment could be $25. But, if your rate jumps to 28 percent, your minimum could shoot up to $35 to $55 a month.
“For low-to-moderate-income workers struggling to make te payments, the extra $20 to $25 a month can make a huge difference,” York says.
Additionally, he explains, a rate hike of a few points could cost you thousands over the debt pay-down period. A $1,500 credit card bill could take 27 years to pay off if you’re just making the minimum monthly payment. At 18 percent, your $1,500 would cost you $7,261 in interest charges before it’s all paid off. At 28 percent, interest costs shoot up to $11,206.
Worried about your debt? Here are some tips from Operation Hope to help your avoid credit card woes, particularly since, by all indications, interest rates will continue their climb for some time to come.
* Live on a budget. If you budget your money and are disciplined, you’ll realize the extra payments won’t fit into the budget.
* Pay more than the minimum. Don’t charge anything you can eat or burn, such as gas or groceries.
* Save your credit cards for emergencies such as if your refrigerator or the transmission in your car goes out, or for planned purchases such as vacations or re-carpeting your house. Even then, budget and pay off the balances as soon as you can.
* Budget. For next year’s Christmas spending, decide on a budget with your family, including everything from the cost of a tree and ornaments to the number of gifts. Then put aside $50 or so each month into a Christmas fund.
* Negotiate for A Better Rate. If you’re headed for trouble but have good credit, try to negotiate a lower interest rate with your credit card company. If you’ve been paying on time, you can let your credit card company know that another company is willing to offer you a lower rate.
* Transfer to a lower rate card. Before you do, read the fine print. Make sure that the long-term rates won’t increase your payments any more than you’re paying now. Watch out for te low-interest introductory offers. After they expire, you could find yourself at a higher rate than you were paying on your old card.
* Consult a debt counselor. If you’re already in trouble, talk to a debt counselor. Often he or she can halt late fees, write letters to finance companies and get you on a reasonable payment schedule. However, make sure the counselor is one that doen't charge crazy fees or pocket a good deal of your monthly payment.