Need a little motivation to get out of debt? Interested in how your debt levels compare with the average American? We’ve researched the Federal Reserve Board statistics to provide you with some perspective:
1. How much credit card debt does the US carry?
At the end of 2007, there was $972,494,000,000 in outstanding revolving debt in the United States. This number includes credit card debts held by commercial banks, credit unions, finance companies and securitized debt balances. (Source: Federal Reserve)
2. How has America’s debt balances changed over time?
From 1997 to 2007, America’s credit card debt balances increased 75%:
2007 - $972 billion (7.7% increase)
2006 - $902 billion (6.2% increase)
2005 - $849 billion (3% increase)
2004 - $823 billion (4% increase)
2003 - $791 billion (2.8% increase)
2002 - $769 billion (4.4% increase)
2001 - $736 billion (4.8% increase)
2000 - $702 billion (12% increase)
1999 - $627 billion (5% increase)
1998 - $597 billion (7.5% increase)
1997 - $555 billion
And there were major increases in the previous decades:
1987 - $169 billion
1977 - $39 billion
1967 - $1.4 billion
(Source: Federal Reserve)
3. How much credit card debt does the average person have?
"As with installment borrowing, the carrying of credit card balances is widespread but notably lower among the highest and lowest income groups, the highest wealth group, and families headed by persons who are aged 65 or older or are retired.40 From 2001 to 2004, the proportion of families carrying a balance rose 1.8 percentage points, to 46.2 percent. The preceding three years had seen a much smaller increase in use. The recent increase was shared by most demographic groups; the proportion carrying a balance declined for the lowest two income groups, the lowest wealth group, the youngest age group, nonwhite or Hispanic families, and renters.
Overall, the median balance for those carrying a balance rose 10.0 percent, to $2,200; the mean rose 15.9 percent, to $5,100. Over the preceding three years, the median had been little changed, but the mean had fallen 8.3 percent. In the recent period, the median balance rose strongly for most demographic groups; but borrowing declined notably for the lowest and next-to-highest income groups and for the youngest age group.
Many families with credit cards do not carry balances. 41 Of the 74.9 percent of families with credit cards in 2004, only 58.0 percent had a balance at the time of the interview; in 2001, 76.2 percent had cards, and 55.4 percent of these families had an outstanding balance on them.”
(Source: 2004 Federal Reserve Survey of Consumer Finances)
4. What percentage of an average consumer’s income goes to their credit card debt?
The median household income in the US is around $43,200, so that puts this level of credit card debt as between 5% to 12% of their annual income.
(Source: Federal Reserve)
5. How much are American consumers paying on their credit card debts?
Someone with a $5,000 balance with a 16% APR who makes a $125 payment each month would need 4.8 years and $2,000 in interest to pay off the balance.
With the same balance and payment and a high 25% APR, the debt would take over 7 years and $5,800 in interest to repay.
With the same balance and payment and a low 9% APR, the debt would take 4 years and $966 in interest to repay.
Now that you’ve seen the numbers, are you ready to get serious about your debt? Request a free debt consultation online.
Thursday, October 29, 2009
Finding Quality Credit Counseling
If the bills are piling up and you’re wondering how you’ll ever get out from under, it’s likely that you’d benefit from some credit counseling. Most people put off getting help until their financial lives are in ruins. They feel as though they have no place to turn. In a panic, they’re not thinking they have a choice. But they … and you … do!
Choose the right counseling agency and you can turn your life around. Make no choice or a bad choice and you may find yourself in worse financial shape. If you’ve been in denial, now is a great time to come clean. Pull out the bills and face the facts. Tally up how much you owe and get yourself some expert help.
Perhaps you’ve been putting off credit counseling because you’ve seen the headlines about the IRS cracking down on many agencies that claim to be nonprofit, but turn out to be nothing of the sort. Here’s how to find a gem of an agency amongst all the rest:
Note: Don’t bother looking up “credit counseling” on Google. You’d find some 5.6 million entries, plus lots of ads from websites with catchy names promising to reduce your debts dramatically and get you debt-free in no time. Don’t trust these sites.
Play It Safe
Choose an agency that is a member of the nonprofit National Foundation for Credit Counseling, which provides services in over 1,300 locations to some two million consumers a year. To find the one most convenient for you, call 800-388-2227 or click here. Certified credit counselors are available by phone, over the Internet, via old-fashioned “snail mail,” and in person to help sort out problems with creditors, teach budgeting, create repayment plans, and plan for the future.
Important: Most experts recommend you work with someone face-to-face, at least in the beginning, to get the maximum benefit.
There are other excellent ways to find nonprofit credit counseling services. For example, you may find financial counseling programs where you work or worship, at your bank or credit union, on your military base, at local colleges and universities – as well as through the local office of the Federal Cooperative Extension Service, which offers programs in family finances, as well as in nutrition, horticulture, child development, and housing.
Questions to Ask a Credit Counselor
Is your agency non-profit? Is it accredited? By whom?
Do you offer budget and credit education? What free information can you give me?
What training do your counselors get? Are they certified? By whom? Do they receive commissions?
Are there upfront fees? If so, how much are they? What if I can’t pay?
Can you assure me that all of my credit records will be kept confidential?
How can I track my accounts as they are being paid through your office?
Can I get that in writing? Will we have a written agreement?
For other questions to ask credit counselors, see this excellent advice from the Federal Trade Commission.
You Shop for Shoes …
In the same way that you may try on a few pairs of shoes before you find ones that suit you, you may need to visit a few credit counseling agencies to find one you’ll be comfortable working with. Remember: this relationship may be one that lasts several years, so you want to find a good fit.
Tip: Don’t let your worries over your immediate financial crisis get in the way of finding a place that feels right to you.
It may be unpleasant to realize, but since you didn’t get into financial trouble overnight, you can’t get out of it that quickly either. That doesn’t mean you should have to tolerate someone’s judgmental attitude or a one-size-fits-all approach to debt relief. There should be plenty of free information available to you without you having to go into detail about your finances first.
You want a well-trained professional who will take the time to develop a debt-busting plan customized to your situation – and someone who will teach you about money management. To further guarantee the advice you get is based upon your needs, counselors should receive a steady salary as opposed to commissions based upon the programs they sell to clients, often using high-pressure tactics.
Tip-Offs to Rip-Offs
Keep away from counseling agencies that:
Need details about your situation before they’ll send you any information.
Do not have certified counselors.
Guarantee to wipe out your unsecured debts.
Promise that your debts can be paid off with pennies on the dollar.
Charge substantial monthly fees.
Expect a percent of the amount they save you as a fee.
Encourage you to stop making payments and/or stop communicating with your creditors.
Promise to remove negative but accurate information from your credit report.
Click here for more of Credit.com’s excellent tips for avoiding scammers.
Check Them Out
It’s easy – but very important – to double check on counseling agencies.
Ask for references from former clients willing to discuss their experiences – and follow up with them.
Ask for recommendations from friends and family. Positive experiences among people you trust can go a long way toward assuring that you’ve made a good choice.
Visit the Better Business Bureau and see if there are complaints about any of the agencies you are considering.
See if the agencies are approved by the Department of Justice, which certifies agencies according to the recent (so-called) bankruptcy reforms.
Before filing for bankruptcy, consumers are now required to obtain credit counseling from an approved agency. To get this government approval, nonprofit counseling agencies must employ trained counselors, have a good track record, be bonded, and demonstrate the ability to provide an evaluation of consumers’ unique financial situations, a personalized budget, and an explanation of alternatives to bankruptcy.
Bankruptcy?!
While bankruptcy may be the furthest thing from your mind, choosing an agency approved by Uncle Sam is simply another way to separate the scam artists from the organizations truly focused on helping consumers.
While many people who enter credit counseling do file for bankruptcy, it’s not the only option. For example, more than a third of those who see a member of the National Foundation for Credit Counseling are able to manage their debt on their own after receiving financial education and counseling.
Many others participate in debt management plans (DMP), where they send one monthly check to the counseling agency, which then distributes payments against their unsecured debts – for example, credit card, medical bills, and student loans – following a payment schedule that the counselor has developed between the consumer and the creditors.
If you choose to go the DMP route – after you’ve reviewed a range of options – choose a credit counselor that will negotiate better terms with your lenders. For example, your interest rates may be lowered and some fees may be waived. On the other hand, you may have to forfeit the right to use or apply for additional credit during the term of the DMP.
How long will that be? Your credit counselor should be able to let you know how long that will take, based upon a monthly payment you can afford, along with your other monthly expenses. If you’ve racked up substantial debts, it could take four or five years to complete your DMP. But before you start following it, make sure your creditors are on board – and be sure to keep up the payments on your secured debts.
Tip: Ask the credit counselor to see if your accounts can be “re-aged” – that is, made current. You will have to make a number of payments before lenders will do so, but it’s an important step in rebuilding your credit, even though negative information (e.g., past late payments) will remain on your credit report.
Click here for more tips from the Federal Trade Commission on making a DMP work for you.
Whatever You Do ...
Don’t ignore your financial problems! As Susan C. Keating, President and CEO of the National Foundation for Credit Counseling, puts it:
“For those consumers who live close to the financial edge, even a small wobble – a cut in pay or change in their recurring expenses – can endanger their economic stability. ... But, too often, our counselors don't get a chance to get in the game until consumers are already in serious financial difficulty. ... I can't count the number of times I have heard a frustrated agency professional say ‘if only we could have talked to them sooner.’"
No matter what your financial situation is, you can get help – but you have to seek it out. The sooner you get going the better!
____________
* Nancy Castleman has spent the last twenty-three years showing people how to save money, get out of debt, and live better on less. Her Good Advice Press website includes many free articles as well as information about her books and free e-letter.
Choose the right counseling agency and you can turn your life around. Make no choice or a bad choice and you may find yourself in worse financial shape. If you’ve been in denial, now is a great time to come clean. Pull out the bills and face the facts. Tally up how much you owe and get yourself some expert help.
Perhaps you’ve been putting off credit counseling because you’ve seen the headlines about the IRS cracking down on many agencies that claim to be nonprofit, but turn out to be nothing of the sort. Here’s how to find a gem of an agency amongst all the rest:
Note: Don’t bother looking up “credit counseling” on Google. You’d find some 5.6 million entries, plus lots of ads from websites with catchy names promising to reduce your debts dramatically and get you debt-free in no time. Don’t trust these sites.
Play It Safe
Choose an agency that is a member of the nonprofit National Foundation for Credit Counseling, which provides services in over 1,300 locations to some two million consumers a year. To find the one most convenient for you, call 800-388-2227 or click here. Certified credit counselors are available by phone, over the Internet, via old-fashioned “snail mail,” and in person to help sort out problems with creditors, teach budgeting, create repayment plans, and plan for the future.
Important: Most experts recommend you work with someone face-to-face, at least in the beginning, to get the maximum benefit.
There are other excellent ways to find nonprofit credit counseling services. For example, you may find financial counseling programs where you work or worship, at your bank or credit union, on your military base, at local colleges and universities – as well as through the local office of the Federal Cooperative Extension Service, which offers programs in family finances, as well as in nutrition, horticulture, child development, and housing.
Questions to Ask a Credit Counselor
Is your agency non-profit? Is it accredited? By whom?
Do you offer budget and credit education? What free information can you give me?
What training do your counselors get? Are they certified? By whom? Do they receive commissions?
Are there upfront fees? If so, how much are they? What if I can’t pay?
Can you assure me that all of my credit records will be kept confidential?
How can I track my accounts as they are being paid through your office?
Can I get that in writing? Will we have a written agreement?
For other questions to ask credit counselors, see this excellent advice from the Federal Trade Commission.
You Shop for Shoes …
In the same way that you may try on a few pairs of shoes before you find ones that suit you, you may need to visit a few credit counseling agencies to find one you’ll be comfortable working with. Remember: this relationship may be one that lasts several years, so you want to find a good fit.
Tip: Don’t let your worries over your immediate financial crisis get in the way of finding a place that feels right to you.
It may be unpleasant to realize, but since you didn’t get into financial trouble overnight, you can’t get out of it that quickly either. That doesn’t mean you should have to tolerate someone’s judgmental attitude or a one-size-fits-all approach to debt relief. There should be plenty of free information available to you without you having to go into detail about your finances first.
You want a well-trained professional who will take the time to develop a debt-busting plan customized to your situation – and someone who will teach you about money management. To further guarantee the advice you get is based upon your needs, counselors should receive a steady salary as opposed to commissions based upon the programs they sell to clients, often using high-pressure tactics.
Tip-Offs to Rip-Offs
Keep away from counseling agencies that:
Need details about your situation before they’ll send you any information.
Do not have certified counselors.
Guarantee to wipe out your unsecured debts.
Promise that your debts can be paid off with pennies on the dollar.
Charge substantial monthly fees.
Expect a percent of the amount they save you as a fee.
Encourage you to stop making payments and/or stop communicating with your creditors.
Promise to remove negative but accurate information from your credit report.
Click here for more of Credit.com’s excellent tips for avoiding scammers.
Check Them Out
It’s easy – but very important – to double check on counseling agencies.
Ask for references from former clients willing to discuss their experiences – and follow up with them.
Ask for recommendations from friends and family. Positive experiences among people you trust can go a long way toward assuring that you’ve made a good choice.
Visit the Better Business Bureau and see if there are complaints about any of the agencies you are considering.
See if the agencies are approved by the Department of Justice, which certifies agencies according to the recent (so-called) bankruptcy reforms.
Before filing for bankruptcy, consumers are now required to obtain credit counseling from an approved agency. To get this government approval, nonprofit counseling agencies must employ trained counselors, have a good track record, be bonded, and demonstrate the ability to provide an evaluation of consumers’ unique financial situations, a personalized budget, and an explanation of alternatives to bankruptcy.
Bankruptcy?!
While bankruptcy may be the furthest thing from your mind, choosing an agency approved by Uncle Sam is simply another way to separate the scam artists from the organizations truly focused on helping consumers.
While many people who enter credit counseling do file for bankruptcy, it’s not the only option. For example, more than a third of those who see a member of the National Foundation for Credit Counseling are able to manage their debt on their own after receiving financial education and counseling.
Many others participate in debt management plans (DMP), where they send one monthly check to the counseling agency, which then distributes payments against their unsecured debts – for example, credit card, medical bills, and student loans – following a payment schedule that the counselor has developed between the consumer and the creditors.
If you choose to go the DMP route – after you’ve reviewed a range of options – choose a credit counselor that will negotiate better terms with your lenders. For example, your interest rates may be lowered and some fees may be waived. On the other hand, you may have to forfeit the right to use or apply for additional credit during the term of the DMP.
How long will that be? Your credit counselor should be able to let you know how long that will take, based upon a monthly payment you can afford, along with your other monthly expenses. If you’ve racked up substantial debts, it could take four or five years to complete your DMP. But before you start following it, make sure your creditors are on board – and be sure to keep up the payments on your secured debts.
Tip: Ask the credit counselor to see if your accounts can be “re-aged” – that is, made current. You will have to make a number of payments before lenders will do so, but it’s an important step in rebuilding your credit, even though negative information (e.g., past late payments) will remain on your credit report.
Click here for more tips from the Federal Trade Commission on making a DMP work for you.
Whatever You Do ...
Don’t ignore your financial problems! As Susan C. Keating, President and CEO of the National Foundation for Credit Counseling, puts it:
“For those consumers who live close to the financial edge, even a small wobble – a cut in pay or change in their recurring expenses – can endanger their economic stability. ... But, too often, our counselors don't get a chance to get in the game until consumers are already in serious financial difficulty. ... I can't count the number of times I have heard a frustrated agency professional say ‘if only we could have talked to them sooner.’"
No matter what your financial situation is, you can get help – but you have to seek it out. The sooner you get going the better!
____________
* Nancy Castleman has spent the last twenty-three years showing people how to save money, get out of debt, and live better on less. Her Good Advice Press website includes many free articles as well as information about her books and free e-letter.
Credit Counseling
Hundreds of credit counseling agencies across the county offer help for individuals with financial problems. Most of them provide counseling by phone, through the Internet, and/or in their offices.
These agencies offer four main types of services:
1. Basic Debt and Budgeting Review. A counselor will review your budget and debts with you to help you figure out how to adjust your spending so you can pay down debt and start saving. He or she will also help determine whether you can afford your payments on your current income or whether you need additional help.
Cost: This budgeting counseling session is typically free, but there may be a nominal charge of $20 - $50, sometimes less.
2. Debt Management Programs. If you can afford to pay back your debts in five years, the agency may recommend that you enroll in a Debt Management Program (DMP). If you do, you will make one monthly payment to the agency, which will then distribute payments to each of your participating creditors. You must close all your credit card accounts. The benefit of a DMP is that many creditors will reduce interest rates and fees so that you can get out of debt in five years or less.
Cost: You may be charged a nominal monthly maintenance fee, though it is waived in hardship situations.
3. Mandatory Bankruptcy Counseling and Education. If you file for bankruptcy, you will have to show the court that you received mandatory pre-bankruptcy credit counseling. If you are deeply in debt, or if your income has dropped, make sure the counseling agency is authorized to provide you with a certificate showing you received this counseling (so you’ll have it if you need it). Additionally, before your bankruptcy can be completed (discharged), you will have to show you completed a required financial counseling course. That course will likely be provided by the same agency.
Cost: Around $50 for each course. Again, the fee is waived in some hardship situations.
4. Housing Counseling and Education. Some counseling agencies also provide foreclosure prevention and mortgage delinquency counseling for consumers who are having trouble paying their mortgages; first-time renter and first-time homebuyer education courses; and mandatory reverse-mortgage counseling.
Cost: Some of these programs are free, while there is a small fee for others.
Credit counselors typically cannot negotiate certain types of debts such as student loans, auto loans, etc. though they may be able to offer referrals to other resources that can help. In addition, many agencies provide referrals to local service organizations that may be able to help with delinquent utility bills, affordable housing, and other social services.
Tip: If you or your family member belongs to a labor union, you may be eligible for a free consultation from the Union Plus Credit Counseling Service. Additionally, union members who successful complete one year in a DMP through this program receive a refund of the first year’s fees.
How Credit Counseling Affects Your Credit
For many years, participating in a credit counseling program had a significantly negative impact on your credit scores. This has changed, however. Several years ago, FICO, creator of the popular FICO credit scores, changed its scoring system to ignore the fact that consumers are paying their debts through a DMP.
You will have to close your credit cards when you enroll in a DMP, however, and that will affect your credit. If you successfully get out of debt with a counseling agency´s help, however, you will usually find that your credit scores improve, since carrying a significant amount of debt hurts your scores. One counseling agency reports that their clients raised their credit scores by an average of eleven points by paying off their debt through a DMP.
How to Find Quality Credit Counseling
Most counseling agencies are non-profit organizations, but that is not a requirement, nor does non-profit status ensure that a counseling agency is “good.” In addition to the fees charged to consumers, they may receive contributions from creditors, who give a portion of the payments they receive through the counseling agency back to the counseling organization. This has led to criticism that these organizations are simply in the debt collection business. On the other hand, creditor contributions keep costs down for consumers.
You can receive a free debt consultation through Credit.com´s partners. You can read more about how to find a good counseling agency in our Learning Center.
You may also want to read about the new Call to Action DMPs that are designed to help more consumers get out of debt.
These agencies offer four main types of services:
1. Basic Debt and Budgeting Review. A counselor will review your budget and debts with you to help you figure out how to adjust your spending so you can pay down debt and start saving. He or she will also help determine whether you can afford your payments on your current income or whether you need additional help.
Cost: This budgeting counseling session is typically free, but there may be a nominal charge of $20 - $50, sometimes less.
2. Debt Management Programs. If you can afford to pay back your debts in five years, the agency may recommend that you enroll in a Debt Management Program (DMP). If you do, you will make one monthly payment to the agency, which will then distribute payments to each of your participating creditors. You must close all your credit card accounts. The benefit of a DMP is that many creditors will reduce interest rates and fees so that you can get out of debt in five years or less.
Cost: You may be charged a nominal monthly maintenance fee, though it is waived in hardship situations.
3. Mandatory Bankruptcy Counseling and Education. If you file for bankruptcy, you will have to show the court that you received mandatory pre-bankruptcy credit counseling. If you are deeply in debt, or if your income has dropped, make sure the counseling agency is authorized to provide you with a certificate showing you received this counseling (so you’ll have it if you need it). Additionally, before your bankruptcy can be completed (discharged), you will have to show you completed a required financial counseling course. That course will likely be provided by the same agency.
Cost: Around $50 for each course. Again, the fee is waived in some hardship situations.
4. Housing Counseling and Education. Some counseling agencies also provide foreclosure prevention and mortgage delinquency counseling for consumers who are having trouble paying their mortgages; first-time renter and first-time homebuyer education courses; and mandatory reverse-mortgage counseling.
Cost: Some of these programs are free, while there is a small fee for others.
Credit counselors typically cannot negotiate certain types of debts such as student loans, auto loans, etc. though they may be able to offer referrals to other resources that can help. In addition, many agencies provide referrals to local service organizations that may be able to help with delinquent utility bills, affordable housing, and other social services.
Tip: If you or your family member belongs to a labor union, you may be eligible for a free consultation from the Union Plus Credit Counseling Service. Additionally, union members who successful complete one year in a DMP through this program receive a refund of the first year’s fees.
How Credit Counseling Affects Your Credit
For many years, participating in a credit counseling program had a significantly negative impact on your credit scores. This has changed, however. Several years ago, FICO, creator of the popular FICO credit scores, changed its scoring system to ignore the fact that consumers are paying their debts through a DMP.
You will have to close your credit cards when you enroll in a DMP, however, and that will affect your credit. If you successfully get out of debt with a counseling agency´s help, however, you will usually find that your credit scores improve, since carrying a significant amount of debt hurts your scores. One counseling agency reports that their clients raised their credit scores by an average of eleven points by paying off their debt through a DMP.
How to Find Quality Credit Counseling
Most counseling agencies are non-profit organizations, but that is not a requirement, nor does non-profit status ensure that a counseling agency is “good.” In addition to the fees charged to consumers, they may receive contributions from creditors, who give a portion of the payments they receive through the counseling agency back to the counseling organization. This has led to criticism that these organizations are simply in the debt collection business. On the other hand, creditor contributions keep costs down for consumers.
You can receive a free debt consultation through Credit.com´s partners. You can read more about how to find a good counseling agency in our Learning Center.
You may also want to read about the new Call to Action DMPs that are designed to help more consumers get out of debt.
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