Getting out of credit-card trouble

Here's an ominous statistic: The number or credit-card holders who were seriously behind in their payments set a record in the final three months of 2003.
In a recent report, the American Bankers Association said delinquencies -- payments more than 30 days overdue -- soared to 4.43 percent in the quarter, up from the previous record of 4.09 percent set the quarter before.
An ABA economist said this was especially noteworthy because delinquency rates on all other consumer loans, including home equity, personal and auto loans, had fallen.
Why are credit cards giving consumers special trouble?
Because people use them to make ends meet when they're unemployed, and the "jobless recovery" has forced more people to go this route, the ABA said. Also cards are accepted for things that used to require checks, such as rent and utilities.
Of course, you might wonder whether the ABA's members have encouraged card abuse by promoting easy credit and burying cost disclosures in fine print.
Red flags
How do you know if you're headed for credit-card trouble? There are some red flags, the ABA says:
You routinely make only the minimum payment required on your card debt.
You find you're constantly out of cash.
You're late with other bill payments.
You're taking longer and longer to pay off card balances.
You borrow from one lender to pay another -- by using the "balance transfer" feature to shift debt from an old card to a new one, for example.
Getting free of excessive card debt is like shedding pounds -- ultimately, it depends on self-control. But, just as you don't stock the pantry with doughnuts when you're dieting, you can make debt-reduction a little easier by leaving your credit cards at home, so you don't rack up new charges.
Instead of paying with a credit card, use cash, checks or debit cards, which work just like credit cards but deduct payments from your bank account. That way, you don't risk having to pay finance charges.
In tackling your debt, start with the accounts that charge the highest interest rates. Put together a plan for making regular payments to eliminate your debt in a specific amount of time. Look for ways to cut spending so you can make bigger debt-reduction payments.
Beware of offers for home equity loans that can be used to pay off card debt. These sound great, since the interest rate on an equity line of credit can be quite low and is tax-deductible. The problem is you may end up paying interest for much longer.
Experts say people in debt trouble should talk to their creditors. You might be able to negotiate a lower interest rate or more time to pay.
A last solution
Filing for bankruptcy is a solution only when all else fails. Sure, bankruptcy may wipe out your debts, but there are severe long-term consequences. Afterward, it could be nearly impossible to get a mortgage or other loan, for example.
People in debt trouble can benefit from counseling organizations that consolidate debts, reduce overall interest rates, and negotiate with creditors. But consumer groups and regulators warn against doing business with outfits that promise immediate results, charge high up-front fees and don't offer financial education as part of the package.
The Senate Permanent Subcommittee on Investigations recently released a report warning of widespread abuses in the credit-counseling industry. Many new counseling companies call themselves nonprofit organizations but actually turn much of their business over to for-profit affiliates that sometimes charge exorbitant fees and fail to provide the services promised, the investigation found.
To find a credit-counseling organization, use the referral service of the National Foundation for Credit Counseling, which has strict membership requirements: http://www.nfcc.org, (800) 388-2227.
XJeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at brownj@phillynews.com.