For many of us, credit cards are an integral part of our annual budgeting – whether you use your card to help stretch your monthly bills or, save it for your annual vacation, it’s hard to imagine life without them. Despite this, you may be surprised to learn that the first ever credit card could only be used in restaurants in New York city.
Credit isn’t hard to swallow
Frank McNamara of the Hamilton Credit Corporation introduced the Diners’ Club Card in 1950 after arriving at the Major’s Cabin Grill in New York to discover that he had left his wallet at home. From this minor inconvenience, Frank conceived a system whereby, instead of handing over wads of cash, diners could fork out for their meals on credit and pay later.
Of course, even then, credit wasn’t anything new – in the late 19th and 20th centuries, America’s farmers relied on credit from local stores in order to feed their families and run their homes during the off season. Stores would issue each customer a number which would be written on a piece of cardboard and, each purchase would be listed on the same piece of card. Once the farmer repaid the debt, a new piece of card would be brought into play.
Fast forward a hundred years or so and almost every purse and wallet in America contains at least one sleek shiny plastic card – most have enough of them for an impromptu game of Black Jack. Our use of credit cards has increased at an incredible rate since inception and, ten years ago, The American Bankers Association reported that we make 10,000 credit card transactions per second, worldwide – a staggering figure which shows just how attached we are to our credit cards but, how much is too much?
At present, the average US household owes just over $15,000 in credit card debt – a financial burden which will take many over 30 years to repay, meaning that the original debt will have more than doubled in that time. More alarming is the fact that many people rely on credit cards to cover their basic living expenses such as rent, food and travel to work. This use of credit cards can, unfortunately, launch a vicious circle whereby consumers are acquiring more and more credit in order to pay off existing debt and cover living expenses. So, is there a way out? The simple answer is yes.
Play your cards right
Dealing with credit card debt can cause sleepless nights and stress related illnesses for many as they find themselves unable to see even a glimmer of light at the end of the tunnel. If you do find yourself crippled by credit card debt, first of all, don’t panic – there is help available.
When dealing with credit card debt, the worst thing you can possibly do is ignore it – believe me, it won’t just go away and you may even end up being prosecuted which will only make a bad situation worse.
Sit down and write a ruthless account of your finances, including all income and all outgoings, from your rent or mortgage to your social activities. Once you have this in front of you in black and white, take a look to see where you may be able to make cut-backs in the short term. Once you’ve done the math and have a realistic idea of what you can afford to repay, you have a few options:
Your flexible friend
First and foremost, remember that your credit card provider actively wants to help. Get in touch with your provider and explain the problem and share with them the information you’ve put together about your finances. Your credit card provider will appreciate your honesty and willingness to address the situation and, will usually be able to offer a new repayment option which won’t leave you struggling.
Get the balance right
It may be that your best bet is to get yourself a 0% balance credit card. Although taking out more credit may not seem like a great idea, this option means that you can get a little breathing space by transferring your debt to a new card and having a short period where no interest is charged. You may be charged a small fee for this service but, as a short term solution, this can help to give you the time you need to get your finances in order.
Consolidate the problem
Again, although you may balk at the idea of acquiring yet more credit, a consolidation loan can be really helpful. These loans work by lending you the funds to pay off all of your separate card debts, leaving you with just the one line of credit to repay. Most consolidation loan providers will work with you to come up with a realistic repayment schedule over an extended period of time.
One of the most stressful parts of credit card debt is the threat of prosecution. Some unscrupulous credit providers use scare tactics to gain repayment, such as threatening legal action. Credit card debt is a serious issue and can be prosecuted but, you won’t be sent to jail for this – as some of these threatening letters may suggest. If you are unable to repay your credit card debt, the provider has the right to sue you in civil court, whereby they will present to a judge evidence of your failure to repay the amount owing. If the judge finds against you, this may result in your wages being garnished or your tax refund being seized.
So, what can you do if a provider has issued legal proceedings?
Firstly, although some providers go ahead with legal action in order to ‘make an example’ of a debtor, it costs money to sue somebody so, most providers would prefer to avoid this option. As above, try to prevent the situation going this far by opening honest communication with the provider or by tackling the debt with a loan or 0% balance card. If you do find yourself sued over the debt, invest in a specialist lawyer who will fight your corner by persuading the court that you were unable – not unwilling – to pay.
Used sensibly, credit cards are a great way of getting the most out of your finances. Before taking out a credit card, have a serious think about what you will use it for – for example, if you decide that you will only use it to pay for your annual vacation, make that decision and stick to it, however tempting that sale bargain may be.