The Truth About Debt...
And How to Overcome It

reduce debtAre You an Average American?
Did you know that the average American household has 13 credit, debit and store cards? It's no wonder. Most US households receive at least one offer of credit a week. They always sound like the perfect answer to your problems, too. Transfer your debt from that really big-balance card to this new one, and you won't have to pay any interest on it for six months! You'll have that debt paid off before then, right? And there's only a little balance transfer fee.

Of course, that other one will now have a zero balance. Doesn't that sound great? You'll want to use it for any new purchases, because you don't want to add to that big balance you just transferred over to the new card. And if it turns out you can't pay it off, well, by then you'll probably get another balance-transfer offer from someone else. It seems like this strategy could work forever. You might wonder, "Why doesn't everyone do it?"

The sad truth is this: The credit card industry collected 43 billion dollars in late-payment, over-limit, and balance-transfer fees in 2004. They aren't very consumer-friendly. They exist to make money from you.

If this situation is starting to sound familiar to you, and you're getting a sick feeling in the pit of your stomach, you don't need to feel alone. A Federal Reserve study showed that 43% of US families spend more than they earn. The only way to do that is to use credit. And it's pretty obvious that if you use credit to spend more than you earn, you are going to be in debt.

When Minimum Turns Into Maximum
Of course, as long as you make the minimum payment every month on all your cards, your credit report will look OK. You will probably be able to get even more cards! But is that actually good news?

Sorry about that. The answer is No.
Did you know that if you made the minimum payment on a $4,800 balance on a card with a 17% interest rate, it would take you 39 years and 7 months to pay it off? You'd pay a total of $15,619, and two-thirds of that would be interest. You'd be paying interest on restaurant meals you ate decades ago, clothes you've donated to Goodwill, and electronics from the stone age!
debt reliefIt's Not Always Your Fault
A 2004 research study showed that most credit card debt incurred by older Americans was due to the high cost of healthcare and prescription medications. In the same vein, anyone with a costly medical condition or emergency can find themselves deep in debt. Health insurance has caps on spending, and even if the caps aren't reached, a 20% co-pay is common in many policies. There are deductibles and supplies and drugs that aren't covered. A serious illness can be devastating to the average family's finances.


Another debt problem beginning to hit Americans this year is that the rates on their A.R.M.s (adjustable rate mortgages) are beginning to reset. With the federal reserve interest rates climbing, many people's mortgage payments have increased by 25%. If your mortgage payment is $1200, that would mean it would readjust to $1500.

So What's a Debtor to Do?
reduce debtSome people take equity loans on their homes to pay off credit card debt. Of course, that means you have to pay back the equity loan-usually by increasing your mortgage payment-and if you sell your house, you'll make less profit because the equity loan will have to be satisfied. And one other thing-the interest on equity loans is higher than it is on a regular mortgage.