Posted on January - 20 - 2011
U.S. consumers reducing credit card debt, but credit scores not improving
If there’s anything positive about the economic downturn, it’s news that Americans are continuing to reduce their credit card debt. Credit Karma reports that average consumer credit card debt levels fell by about $1000 between January 2009 and now, which puts average credit card debt at about $6400. While paying off debt is an important financial goal, the truth may be less than uplifting. Reasons for decreases in consumer debt may include:
- Economic concerns: Cutting discretionalary spending, saving more and paying cash all make sense when consumers are unsure about job security, pay raises and home values.
- Disappearing home equity: A few years ago, homeowners were riding a seemingly endless wave of increasing property values that rapidly escalated their ability to qualify for home equity loans and lines of credit. Now that this source of funds for paying off credit card debt has all but disappeared; the spending spree is over for many consumers.
- Credit restrictions: Credit issuers are issuing fewer cards and accounts that are approved carry lower credit lines.
- Charge offs and bankruptcies: Credit card issuers charge off bad debt after several months, which removes it from active status. Debt discharged through bankruptcy courts is also removed from active status.
In spite of paying down credit card debt, the average credit score for American consumers decreased by one point to 668. This inconsistency could be the result of debt reduction through bankruptcy or foreclosure, and may also reflect missed or late payments due to lay-offs and unemployment.
Wisconsin currently leads the nation in consumer debt reduction; its residents have paid off 31 percent of their credit card debt, while Nevadans have cut credit card debt by 11 percent. Here are some ideas for cutting your own credit card debt.
Is debt consolidation a good way to liquidate credit card debt?
If you have good to excellent credit, you may qualify for a low interest debt consolidation loan from your bank or credit union, but it’s important to note that unsecured debt consolidation loans can be difficult to obtain in today’s restrictive credit environment. A few basic math skills, a spreadsheet program and a lot of willpower can go along way toward setting up a debt management and payoff program on your own. Keys to success include:
- Tracking your progress: Watching debt disappear is a great incentive to stick with your credit card debt payoff plan. Setting goals for paying off debt and raising your credit scores can provide the motivation you need to avoid “slipping up.”
- Don’t carry credit cards with you: You cannot pay off credit card debt if you continue to use credit cards. What’s in your wallet? A debit card and cash should be there instead of credit cards.
Consumer credit counseling and debt consolidation services offer assistance at low or no cost to qualified consumers struggling with credit card debt.
Similar Posts:
- Major credit card company reports drop in November charge-offs
- Debt consolidation options and credit counseling: No instant fix
- Credit card debt consolidation: Is debt consolidation good?
- Lawmaker introduces bill to reduce credit card interest rates
- Credit Card Debt: Breaking More Than Your Budget
