Credit card debt resource guide: Tips for taking control of your debt alone or with help

Tips for finding reliable debt counseling in Michigan

Credit card debt is the most common type of debt in the United States and there are more than 500 million open accounts, according to the Federal Reserve Bank of New York

An Experian Consumer Credit review from 2019 found people in Michigan carried an average of $5,399 in credit card debt.

What you need to know about credit cards

If you already have a credit card, or are just thinking about getting one, there are some key things you want to be aware of.

You need to understand what a credit card is and how it works, know how to use it to build credit and familiarize yourself with key terms.

When you sign up for a credit card, the bank provides you with a credit limit and when you swipe it you’re basically taking out a short-term loan.

Credit cards can help you build up your credit score when you use it regularly, make payments on time and keep the balance low. Even just having an open account can help because the length of your credit history impacts your credit score.

You should be able to answer the following questions about your credit card:

  • Is there an annual fee? This depends on the type of card you have, but should have been listed in the terms and conditions when you first signed up.
  • What is the annual percentage rate (APR)? Is the APR variable or fixed? Most credit cards have variable interest rates and you can keep an eye on the interest rate by checking your billing statement each month.
  • What is your credit limit? If you go over your limit, the transaction will likely be denied. But some cards have different terms and might allow the transaction to go through but you could face fees or higher interest rates.
  • When is your payment due? If you fall behind on a payment or pay less than the minimum amount you might have to pay a late fee. Missing a payment will hurt your credit score.

Tips for tackling credit card debt yourself

The first step for getting control of your finances is to know how much money is coming in each month and how much money is going out.

Your goal here is to be spending less money than what you’re bringing in. Try tracking everything you spend with an app, a notepad, a spreadsheet or even just the notes section of your phone. Just being aware is a good first step.

Experts recommend saving between three and six months worth of expenses in a high-interest emergency fund. That’s one of the cases where high interest works in your favor. You’ll have to decide how much you want to save each month and how much you want to use to pay down your debt.

Know where your credit card debt stands. Write down each balance you have and the APR. Then you can start thinking about ways to pay them off.

There are two common methods for paying down debts created by financial expert Dave Ramsey: the avalanche method and the snowball method.

The avalanche method would have you pay off the balance with the highest APR first and then work your way through all your debt from highest to lowest APR. That way you’re paying less overall in interest.

The snowball method is all about changing your habits. You would prioritize paying your debt down from the smallest balance to the largest, regardless of what the interest rate is.

You can learn more about the differences between both by clicking here.

Consider contacting your creditors. If you’re struggling financially you should consider contacting your creditors and explaining your situation.

You can tell them why things are difficult for you and try to work out a modified payment plan so your account isn’t sent to a debt collector.

You can click here to learn more from the FTC about how to get yourself out of debt.

Know how to calculate interest

Your APR and the amount of debt you have is used to calculate how much you’re paying to keep that debt on your credit card.

To find out what it’s costing you per month to have credit card debt you have to know the APR and your current balance. That information is on your credit card statement.

Daily periodic rate calculations:

  • Step 1: Find your current APR and current balance in your credit card statement.
  • Step 2: Divide your APR by 365 (for the 365 days in the year) to find your daily periodic rate.
  • Step 3: Multiply your current balance by your daily periodic rate.
  • Step 4: Multiply the daily periodic rate by the number of days in your billing cycle. The average is about 30 days.

Monthly calculations:

  • Step 1: Find your current APR and current balance in your credit card statement.
  • Step 2: Divide your APR by 12 (for the 12 months in the year) to find your monthly periodic rate.
  • Step 3: Multiply your current balance by your monthly periodic rate.

When you sign up for a new credit card they may offer you benefits like a low or 0% introductory APR for new purchases and balance transfers.

You can take advantage of these offers by transferring debt from a high interest card to a low interest card.

You’ll want to pay attention to the terms and conditions here. Sometimes it is free to transfer, other times there is a percentage or fee you’ll have to pay.

Here are some credit card interest calculators: Discover, Forbes Advisor

Tips for finding trustworthy credit counseling

You can often find free or low-cost credit counseling services at credit unions, extension offices (Michigan State University Extension), religious organizations and nonprofit agencies.

Credit counselors generally give people advice on how to manage their money, offer solutions to financial problems and help them create a personalized plan. Credit counselors do not take money from you to pay your creditors.

The State of Michigan wants residents to be aware that nonprofit status does not mean that services are free, affordable or legitimate. Some credit counseling organizations charge high fees, which they may hide or ask clients to make “voluntary” contributions that only cause more debt.

Before you agree to anything you should carefully read through any written agreement a credit counseling organization offers.

You’ll want your credit counseling service to be accredited by the NFCC or the FCAA. You can click here to learn more from the FTC about choosing a credit counselor.

View: List of IRS approved counseling agencies

Tips for dealing with debt collectors

Debt collectors have to follow certain rules and regulations on how and when they contact you.

The Fair Debt Collection Practices Act is a federal law that requires the following of debt collectors:

  • Debt collectors may call you between the hours of 8 a.m. and 9 p.m.
  • They may not call you while you are at work
  • They may not harass you, lie to you, or use unfair practices when they are trying to collect a debt from you
  • They must honor a written request from you to stop further contact (this should be sent certified mail)

If you need more information or need to file a complaint, you can contact the FTC at 877-382-4357, the Consumer Financial Protection Bureau (CFPB) at 855-411-2372, or the Michigan Department of Licensing and Regulatory Affairs (LARA) at 517-241-9288.

How to spot a credit repair scam

Nobody can legally remove accurate and timely negative information on a credit report.

Michigan released the following list of signs that a credit repair offer is up to no good:

  • The offer wants you to pay for credit repair services up-front, before any services are provided. Under the federal Credit Repair Organizations Act and Michigan Credit Services Protection Act, a credit repair company cannot require payment until they have completed the services they have promised.
  • The offer says the company can get rid of most or all negative credit information in your credit report, even if the information is accurate and current. A consumer reporting agency can report most accurate negative information for seven years and bankruptcy information for ten years.
  • The offer includes a suggestion that you create a “new” credit identity - and then a new credit report - by applying for an Employer Identification Number to use instead of your Social Security number. It is illegal to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
  • The offer includes advice that you dispute all the information in your credit report, regardless of its accuracy or timeliness. The offer includes guaranteed results. Guaranteeing or stating that the company is able to delete negative credit information (which is not inaccurate or obsolete) is illegal under the Michigan Credit Services Protection Act.

You can click here to learn more about credit repair scams.

About the Author:

Kayla is a Web Producer for ClickOnDetroit. Before she joined the team in 2018 she worked at WILX in Lansing as a digital producer.