With the looming financial threats of job loss, income reduction, and a recession, it makes sense that most people have made credit card debt reduction a priority. And it should very well be a priority. After all, this type of debt normally carries the largest costs in terms of interest rates. As well, given the rising rates, credit card debt reduction is one thing we all need to look at more closely if we want to not only weather this economic storm, but to make ourselves financially better off.
Taking a deeper look at interest rates, keep in mind that card rates have rising a full percentage point in the past 3 months (from 13.94% in May to 14.94% today). This means that credit card debt reduction is something we must now examine a lot more closely before rates rise farther and push us closer to insolvency.
Of course, the rising rate trends are just one reason people need to focus more closely on credit card debt reduction. Another reason includes your FICO score (or other credit-scoring method), which places a greater than 65% emphasis on just utilization and repayment history.
Borrowers who do not make credit card debt reduction a priority will normally encounter problems when there is a personal financial setback, such as a reduction in income. When the balance hovers at or near (or even above) the card limit, borrowers will be penalized through their score for having high utilization. To compound matters, if the financial setback is a bad enough and a single minimum payment is missed, the score will suffer even more on account of late payments.
Of course, worst-case scenarios are never popular when it comes to hedging against personal financial risks. However, the realities are quite clear: card rates are increasing, we are experiencing a terrible recession economically, and credit scores are becoming more and more important where credit approvals are concerned. Collectively, these facts should encourage all of us to consider putting a plan in place that will see credit card debt reduction everywhere.
We have our own personal reasons for carrying debt on credit cards. Whether we are comfortable given a perceived job stability or we simply are not bothered by large debt, it does not matter. However, when it comes to dollars and cents (and most of care about that!) it is strongly recommended that we examine how credit card debt reduction can help us now and into the future, particularly as it relates to our financial well-being.
Chris has more than 16 years of financial services experience. He provides information about the First Time Home Buyer Mortgage at the Home Equity Loan Site.