Credit Card Balance Increases, Delinquencies Drops

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Seems there’s a bit of mixed reviews from the latest data from Transunion.   The good news is that credit card delinquency rates (90+ days past due) has dropped to 0.63% in the 2nd quarter compared to 0.73% in the previous quarter last year.   The bad news is that the average credit card debt per borrower increased the past year from $4,699 in Q2 of 2011 to $4,971 in Q2 of 2012.

The last time the delinquency rate was this low was in Q4 of 1994.   This could be a strong indicator that most consumers are being more cautious with their spending and banks are going through more aggressive underwriting.

Although the average credit card balances have slightly increased, consumers can take necessary steps to make sure they don’t overextend their credit.   Unfortunately, carrying a credit card has become a necessity these days. We need them for car rentals, hotel bookings, or even for better fraud protection.

Most people can attest to carrying a balance at one point in their lives.   While some may have learned the hard way of carrying too much debt, other consumers have maintained a strict budget to keep their spending in control.   If you’re carrying a balance, but not overly extended, here are some tips on how you can start to reduce your balance:

  1. Get Organized- Do you know the APR and due dates for each credit card?   Getting organized is one of the first steps to paying down your debt.   Make a spreadsheet and figure out exactly what your interest rates are for each account.   Being a single day late on your credit card can be costly.   Creditors have a universal default clause in your cardholder agreement that states that they’re allowed to raise your interest rate based on any sign of risk you may impose.
  2. Snowball your way Out of Debt — New studies have shown that consumers who pay off their lowest balance first have a higher chance of paying off their debts.   The concept behind this approach is that consumers are more motivated when they’re able to celebrate all the small victories.   Using the debt snowball approach requires you to be persistent in rolling over your payments after each credit card is paid off.
  3. Ask for a lower interest rate- It doesn’t hurt to ask for a lower interest rate.   If you’ve been a good customer with a track record of timely payments, explain to your creditor that you’ve been offered a lower interest rate from another creditor.   However, do NOT tell them that you want a lower interest rate because you’re in a financial hardship. This will raise a red flag in their internal system and could potentially back fire on you.

Using credit cards responsibly is the key to establishing a healthy credit history.   Credit cards aren’t necessarily evil, but if used in the wrong way, you can end up in a never ending spiral of debt.   Always monitor your balances and transactions on a regular basis and have a clear idea of how much you can spend.   Most people might mistake their available credit as “free money” that they can pay back later, but this is dangerous route that can leave your finances devastated.


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