Friday, June 23, 2006

While payday loans offer prompt access to cash to consumers under the direst of circumstances, paying off debt is the best way to assure that you'll never need these resources.

So why can't people do it?

The premise is simple. All you need to do is earn more than you spend, and apply the savings toward paying down debt. But most Americans these days find paying off credit card debt exceptionally hard. A great many of them are fighting a losing battle, and may end up strapped for cash in the worst way.

• Consider that 57 percent of all credit card holders carry an outstanding balance.
• Among families that have at least one credit card, the average balance is a staggering $9,313.
• Ten years ago it was $4,301.

"People are out of control," says Howard Strong, a consumer attorney.

And it's taking a toll. According to a survey of 1,500 consumers by Consolidated Credit Counseling Services, a whopping 71 percent said debt is making their home life unhappy. Part of the problem is that the credit card companies have made it easier than ever to carry balances.

"People are addicted to minimum-payment crack," Steve Rhode, co-founder of the debt counseling service Myvesta, said.

But many fiscally responsible people can also find themselves woefully in debt after some sort of personal crisis, such as a divorce, illness or the loss of a job. This is when they will be tempted to call in a quick payday loan if they are not otherwise protected. So what are the warning signs that your credit card debt has changed from nuisance to crisis-in-waiting?

For starters, if you think that you might be having a problem, you probably are. If your debt-to-income ratio, mortgage payments notwithstanding, is in excess of 20 percent, you shouldn't be devoting more than 20 percent of your net income paying off credit cards. As much as you want to pay down credit cards, having problems making payments on home loans is an even worse proposition.

MORE RED FLAGS:

1. Only being able to make the minimum payments on your debt.
2. Maxing out several or all of your credit cards.
3. Frequently charging items with the intention of paying them off at the end of the month, but finding yourself unable to do so later on, resulting in more and more credit card debt.
4. Using credit cards for everyday purchases like food.
5. Buying pricey things you know that you can't afford.
6. Worrying that people close to you will find out.

If creditors or collection agencies have come a-calling, or if your credit score is already suffering due to late payments or bills that you've been unable to pay at all, then you should consider credit counseling. But you can also take steps to dig yourself out on your own. Figure out just where you stand financially. Compile a list of what you owe, as well as how much you have saved.

In other words, your net worth and your cash flow need to be clearly in your mind for you to do anything. Ultimately, you'll have to come to grips with this problem or is will never go away. While there is nothing wrong with taking out a faxless payday advance in emergency situations, the more you prepare for the future, the less likely you'll have to reply on one.

This entry was posted on Friday, June 23rd, 2006 at 9:00 am and is filed under Consumer Debt.