|CREDIT CARDS: |
BLESSING OR CURSE?
May 30, 1997
Your questions were answered by Independent financial advisor, Dave Ramsey, and by the American Bankers Association.
Should we pay off our debt or declare bankruptcy? How can bad credit be repaired? Should I take out a loan to pay off my credit cards? At what age should parents allow children to have credit cards? Should there be more restrictions on who can get a credit card? How do banks assess who can get credit, and who monitors the banks?
November 29, 1996
Economics correspondent Paul Solman analyzes rising consumer debt in the U.S.
American Bankers Association
Financial advisor Dave Ramsey
The Federal Trade Commission working paper on choosing and using a credit card.
The Federal Trade Commission working paper on solving credit problems
Consumer Handbook to Credit Protection Laws written by the Board of Governors of the Federal Reserve System.
Victims of Credit Reporting, a non-profit group, has a list of interesting credit related links.
Nerdworld has a library of credit/debt management links.
A question from Rick Squires,
Is it better to take out a loan to pay off your credit cards or cut them up or try to pay them off early.
Financial Advisor Dave Ramsey responds:
Rick, we find that it is better in most cases to cut up your credit cards, close accounts, and list your debts smallest to largest. Pay minimum payments on everything except the smallest one and attack that one. When the smallest is gone, use the money that you were paying on the that plus any money that you can find and attack the next smallest debt. We call that a "debt snowball," paying everything off except the house. The debt snowball form is in the back of my book "Financial Peace."
The problem with taking out a loan to pay off your credit cards is that you are treating the symptom. Debt is the symptom, not the problem. The problem is mismanagement, over spending, and lack of savings. We have found that the best way to attack this issue is in habit patterns. So we do not recommend bill consolidations, except in extreme circumstances.
The American Bankers Association responds:
Even if you have just a few cards with relatively low balances, you should look into a consolidation loan. Consolidation loans tend to have lower interest rates than credit cards. Those rates can be even lower if you consolidate into a home equity loan or other secured product.
If you do get a consolidation loan, don't allow yourself to think that those zero-balance credit cards are an invitation to spend. Cut up your cards, put them in a drawer or rely on your willpower, but don't give in to temptation or you'll get deeper in debt.
Depending on your situation, you may be better off shopping for a single credit card that has a high annual fee and a low interest rate. Even though the annual fee may be as high as $50, you'll save money in the long run by paying less interest. By transferring your balances to a single card you'll have fewer bills to manage.
Bottom line, you'll have to do the math to see which option is best for you.
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