The economic recession has highlighted the fallacies of consumer spending in the US markets and the reason behind the increasing debt. People have been borrowing indiscriminately from credit card companies to stay afloat and meet their basic requirements. Card companies have taken advantage of this fact and have been exploiting the situation for their profits. The average annual percentage rate (APR) charged by credit card companies stands at over 14 percent. With the economy only recently showing some signs of stability the credit card debt is expected to rise.
Taking heed of this situation, the government has enacted significant laws to help the general population. One of the laws is the American Recovery and Reinvestment Act 2009, and the other is the Credit Card Accountability Responsibility and Disclosure Act 2009. The first act has increased government spending in the market and has introduced tax reform that will enable citizens to take home larger pay packets. The second one has made sweeping reforms to the credit card industry.
An average American has more than 3 credit cards, and on an average a family owes more than $15,000 to credit card companies at any given time. These are significant numbers especially since earnings are at an all-time low. The interest rates on credit cards are very high with some companies charging over 16 percent interest on borrowings.
Unsecured loans are not secured by any asset for example a house, jewelry, car, etc. The lender therefore does not have any means to recover the loan if the borrower decides to renege from his commitment to repay the loan. This is the primary reason behind the high interest rates charged by card companies. Credit card companies also levy heavy fees and penalties for late payments and also use ambiguous terms like 'prime rate' and 'fixed rate' of interest to exploit the consumers.
If you are in a situation where the mounting debt is a cause of worry one of the first things that you need to do is, get rid of the credit card debt. Analyze your debt and prioritize the repayment according to the interest rate you are paying on individual debt. For example, if you have a credit card debt, a mortgage and a car loan, make sure that you make the credit card debt a priority in your repayment plan because you will be paying high interest and penalties on this debt. One of the things you can consider to eliminate your debt is to take a secured loan as the interest rate on this kind of loan will be considerably lower than the one you are paying for the credit card.
If you have two or more debts, then it is a good idea to consolidate these loans after carefully considering the situation. Consolidation is a process where you combine all your debts and take a single loan to pay them off. This way you only have to worry about one installment and a single due date instead of managing several payments on different due dates. You can also make requisition to get the help of credit counseling agencies that are affiliated with the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or National Foundation for Credit Counseling (NFCC) to consolidate your loans.
Getting out of debt is easy but you have to learn financial wisdom and resolve to change the way you spend in order to stay out of debt. If possible you also need to consider substitute source of income to support your spending habits as increasing the income is the best way of getting out of debt.