by Bill Hardekopf
Americans are borrowing and charging much more, according to the latest Federal Reserve G19 report.
Consumers increased their overall borrowing by $20.4 billion in November which represents the largest increase in ten years. Many analysts believe this is a sign that Americans are feeling better about the economy.
However, there could also be some red flags in this latest report.
Revolving credit, the majority of which is credit card debt, increased at an annual rate of 8 1/2 percent and grew for the third straight month. The $5.6 billion jump represents the largest gain since March 2008.
This is a big jump in credit card debt, and these are November figures. With the strong holiday sales, we will likely see another increase in December during the peak of the shopping season. While this increase may be good news for retailers, it also means that consumers will soon be getting credit card bills with much higher balances. Consumers can't get lured into running up more credit card debt if they can't afford to quickly pay it off. Increasing credit card debt is not a trend to be carried over into the new year.
Here are six tips for paying down credit card debt:
- Get an honest assessment of how much you owe for all credit cards debts. It may have been easier to pay the minimums without looking at the total amount that you owe, but misleading yourself only makes it worse. Write down a debt summary that includes the creditor, monthly payment, interest, balance due, credit limit and due date for each loan.
- Pay more than your minimum payment. Your minimum payment is usually only 2-5% of your balance. At this rate, it will take years to pay off your debt. Try to pay at least twice the amount of your minimum payment every month.
- Pay off the card with the highest APR first. Continue to pay at least the minimum on your other cards until you pay off the card with the highest rate. Then focus your effort on the card next in line. After you pay off the card, keep it open, especially your oldest cards. Losing this available credit can lower your debt utilization ratio which could lower your credit score.
- Consider transferring your balance to a card with a lower rate. If your rate is above 15%, look for a card that offers 0% for at least 12 months. You will need to determine if the interest payments you save outweigh the fee you will pay on the amount you transfer (usually 3-4%). To take full advantage of this 0% introductory offer, don't charge anything more on this card and try to pay off the entire balance during that introductory time period. When comparing cards for a balance transfer, also look at the ongoing interest rates. If you are unable to pay off the balance before the introductory period ends, you will then pay the ongoing interest rate. Another consideration is that the credit card issuer may only accept a portion of the amount you want to transfer because, depending on your credit limit, the issuer will want to leave room for new charges. The best offers will typically be given to applicants with a credit score in the mid-700s. If you have a score less than this, you may receive a shorter introductory period, or your application may be declined.
- If you have a credit card balance, stop using it for anything other than necessities. Use cash instead. If you carry a balance, you are paying interest for every purchase, including clothing, entertainment or dinner. Factor that in to each purchase. Paying with cash will not only save money on interest, but it will also reduce the amount you spend.
- Pay your bills on time, every time. Not only do you have to pay a late fee, but late payments can also appear on credit reports. Negative information like this can result in lower credit scores and higher interest payments.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.