Curbing Your Appetite for Credit

It’s a bad hangover from holiday binging that just won’t go away. Too much shopping and seasonal cheer have left many of us with a mailbox full of credit card bills and the headaches that go along with paying them.

If you celebrated the holidays and improving economic news with a spending spree, you’re not alone. Millions of Americans splurged their way through the last months of 2003 with the help of a credit card, pushing consumer debt levels to record highs. 

That surge in credit use continues a trend that has doubled Americans’ consumer debt in less than 10 years, according to the Federal Reserve. Debt levels exceeded $2 trillion (includes credit cards and other loans, but not mortgages) on a non-seasonally adjusted basis in November 2003 — the latest reporting period available — and credit card debt specifically soared to $735 billion, or almost $7,000 per household. Clearly, consumers’ appetites for more and more debt, especially credit card debt, appear to be growing.  

That is bad news, say debt management experts, who fear for consumers already up to their necks in debt. “Lots of people think of a credit card as an entitlement and a way to buy a lifestyle,” observes one, “without regard to thrift and careful spending. That puts many people dangerously close to the edge, where any setback could push them over.”

In fact, mounting credit card debt is squeezing budgets that are already strained by student loans and mortgage borrowing, and increasingly by rising out-of-pocket medical expenses. That may help account for record consumer bankruptcies — more than 1 million a year since 1996 and 1.54 million just in 2002. In the first nine months of 2003, filings totaled almost 1.25 million and could set a new record when full-year tabulations are completed by the Washington, D.C.-based American Bankruptcy Institute.  

At the same time, the nation’s savings rate dropped to just 2 percent of after-tax income during the first half of 2003, according to government figures. Analysts believe that figure and debt statistics suggest more people are living paycheck to paycheck and spending money more recklessly with less concern for future consequences. Many Americans, they say, have abandoned the notion that credit cards are used only for emergencies or goods that appreciate in value and now treat the cards as a license to spend.

As 2004 begins, they agree, most Americans need a credit diet even more than a food diet. But managing your credit use and eliminating debt doesn’t necessarily require Draconian measures and a life of deprivation. It does mean that you must take control of credit cards, use them appropriately and wisely, and stay focused on financial goals such as debt reduction. Credit counselors recommend a number of strategies for successfully reining in out-of-control credit card appetites and eliminating debt. 

Resolve to spend only what you can really afford.

An honest assessment of income, current expenses and debt obligations will reveal your true financial circumstances. Many spenders don’t slow down long enough to figure out that they are spending more than they earn, say credit counselors. “It’s an eye-opening experience to learn that with the help of credit cards you could be spending a lot more money than you earn and digging yourself into a financial hole,” observes one.

Set spending limits.

Make a plan that defines when you will use credit cards and how much you can comfortably afford to charge each month. If that is $300, for example, track amounts charged throughout the month and put the credit cards away when you have reached that amount.

Carry a minimum number of cards.

Avoid collecting a wallet-full of bank and department store cards. Most people need no more than two or three credit cards, say financial advisers, no matter what their circumstances might be. Bank cards are generally a better choice than department store cards because they are more widely accepted and carry lower rates.

Shop for a lower interest rate.

Look for opportunities to move high-interest-rate debt to low-interest-rate cards, and compare credit card offers on Web sites such as and But beware of low introductory transfer rates that skyrocket if balances are not paid off in a short timeframe. If your credit rating and payment history are stellar, consider contacting your current card issuer to ask for a better interest rate; many are willing to keep your business at a lower interest rate rather than lose it completely.

Pay bills on time.

Prompt payment ensures you avoid costly late fees and punitive interest rates. On-time payment is also factored into your credit score, which determines the availability and cost of future credit.

Pay more than the minimum payment due.

Best advice: Pay off bills each month or as quickly as possible. You can substantially shorten the amount of time it takes to pay off your balance if you pay more than the minimum payment required. But that’s not all you will reduce. You will also save dollars you would have been charged in interest.

Rank credit cards and pay them off.

If you have several cards with balances, rank each by the interest rate charged. Focus your efforts on paying off the card with the highest interest rate first. Then work your way down the list to the card balance with the lowest interest rate.

Watch for signs that you are in trouble.

Financial advisers caution credit users to heed early warnings that they may be headed in the wrong direction. Telltale signs that you are dangerously close to a credit crisis: You skip some debt payments to pay others. You use credit to pay for purchases, such as groceries, that you should be able to buy with cash. You’re behind on basic expenses, such as your mortgage or utility payments. You receive overdue notices or telephone calls from bill collectors. You spend more than 15 percent of your take-home pay on credit card debt.

Reach out for help.

If you can’t find your way out of debt, take action to improve your finances and your peace of mind. Don’t be afraid to call your creditors as soon as you know you are in trouble; explain your situation and the actions you are taking to resolve problems. Depending on individual creditors’ policies and procedures, you may be able to negotiate a lower payment, a lower interest rate or both. Many want to keep your business rather than lose it to bankruptcy or foreclosure. Or you may want and need to seek professional credit counseling. A credit counselor can help you take positive steps to get out of debt and stay out of debt. You can find counselors through the National Foundation for Credit Counseling,, and the Association of Independent Consumer Credit Counseling Agencies at

Author: Judy Alexander

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