What is an APR?

APR stands for Annual Percentage Rate, or the amount of interest charged by the credit card company for your purchases each year. To figure out how much interest your credit card company would charge you for your purchases is to divide your APR by 365. However, the amount in interest you end up paying if you fail to pay off your balance each month is much more because of the concept of compound interest. If you want to always avoid paying finance charges and not worry about your APR, simply pay off your balances in full, before the due date each month.

What is an introductory APR?

An introductory APR is a special, “teaser” APR designed to attract new credit card customers. You will often find introductory APRs last between 6 and 12 months. After that, the card’s default APR will set in. Beware of introductory APRs because they can give you a false sense of security that you have a card with a great APR. Although a credit card company may offer you a zero percent introductory rate, the default APR may be quite high. Therefore, it is important to pay close attention to the card’s default rate and not just the introductory rate.

Will my credit card’s APR ever change?

Perhaps. However, due to the CARD Act legislation, your credit card company must inform you of the change, in writing, 45 days in advance of the APR change. When applying for a credit card, look for one that has a “fixed” APR, not a “variable” one, as a variable APR will change according to the prime rate.

How important is my card’s APR?

Although most people look just at card’s APR, it is important to also look at other features of the credit card when determining whether the card is right for you. In short, thoroughly read the card’s terms and conditions so you can fully understand all features of the card, including the card’s APR.

However, if you are serious about paying down your credit card debt, there are a few major steps you can take to accomplish this. Here’s what you need to do to tackle that credit card debt today:

1. Gather your debts and total them up. Your total credit card debt may be quite a bit more than you previous thought, especially if it is spread out over a number of credit cards. Don’t round totals or ignore even the smallest debt; total it all up, down to the penny, so you can get an accurate picture of your current debt load.
2. Talk about the debt together as a family. One member of the family should not have to shoulder the reality of your family debt. Instead, call a family meeting and discuss the problem with all members of the family so everyone is aware that major changes will be taking place in your household to tackle the family debt, once and for all. In addition, talk to each other about how you got to where you are and the changes that the family will make to ensure this type of debt does not present itself again.
3. If the debt is too much to handle, consider calling in the professionals. Avoid debt-elimination companies or debt-consolidation companies, as it is often quite difficult to discern between the legitimate and not-so-legitimate companies. Instead, contact the Association of Independent Consumer Credit Counseling Agencies and ask about developing a debt management plan.
4. Get immediate cash in hand. If you need to put a serious dent in your debt, consider selling material things. Is your house too much to handle? Is your car note simply too steep? Can you sell electronic equipment, furniture and other material goods to get back on track? Although this is often difficult to stomach, getting rid of those things that put you in debt in the first place may be just the way to go.

Americans are known for many things, and running up a considerable amount of debt is one of them. Creditors are banking on this because it means you may want to consider protecting your finances and your credit if something catastrophic happens. And that’s where credit card debt protection comes into play.

Typically, credit card debt protection programs are like insurance policies on the debt you carry from month to month. They are designed to pay your credit card bill should you lose your job or experience some other type of financial hardship. However, this protection doesn’t come free, so it’s up to you to decide whether the cost of a credit card debt protection plan is worth your time and money.

Here’s what we know:

• In 2009, credit card consumers paid out more than $2.4 billion for debt protection products to the nine largest credit card issuers.
• For every dollar you pay to the credit card company for debt protection, you receive about 21 cents in benefits. The credit card company, other hand, earns about 55 cents out of every dollar you pay in debt protection fees.
• Monthly fees for debt protection programs range anywhere from 85 cents to $1.35 for every $100 of debt. To put this into perspective, expect to pay between $500 and $800 per year for debt protection for a $5,000 balance.
• Premiums paid out by consumers for debt protection vary widely, as states oversee this type of insurance.

Debt protection products usually work by suspending monthly, minimum payments or even cancelling out a balance due to illness, unemployment or death of the cardholder.

The bottom line is that the value of these products is difficult to measure. Some advocacy groups, like the Center for Economic Justice, criticizes the sheer cost of these insurance policies and state that many cardholders could be ineligible to receive benefits if they ever should need them. For example, an individual working part-time who loses his or her job will be unlikely able to claim benefits.

Your best route to take when deciding whether a debt protection insurance product is right for you is to carefully read and review all of the information before signing on.

Equifax recently reported that, for some households, credit card debt burden equaled an astounding 17 percent of their income. What’s even more amazing is this total doesn’t include debt from store credit cards.

Experian has also analyzed consumer spending habits and found that the average consumer now holds an average of $4,200 in credit card debt. One bright light to this number is that it is four percent less than the year before. There are some cities, however, where credit card debt is far above the national average.

Here is a list of the top five U.S. cities with the highest consumer credit card debt:

1. San Antonio, Texas – Residents of San Antonio are now carrying, on average, $5,177 in credit card debt; that’s more than 20 percent above the national average. Jeanie Wyatt, CEO of the San Antonio-based firm of South Texas Money Management, explains that San Antonio’s debt problems are closely linked to the fact that this city is largely comprised of the working-class, and that wages earned in San Antonio are often less than other parts of the country.
2. Jacksonville, Florida – Residents of Jacksonville owe an average of $5,115 on credit cards. In addition, this city has a lower-than-average credit score. Jacksonville’s credit card debt problems come as no surprise, as this area of the country has been deeply affected by the real estate meltdown and mortgage problems.
3. Atlanta, Georgia – If you live in Atlanta, chances are your credit card debt is around $4,960. Atlanta has suffered from the housing market collapse, leading many to spend on credit cards out of “economic desperation.”
4. Honolulu, Hawaii – Honolulu’s debt average is about $4,939 per person, which is 15 percent higher than the national average.
5. Dallas, Texas – Dallas residents are now carrying an average of $4,936 in credit card debt, which is 15 percent higher than the national average. A bright spot in Dallas’ number, however, is that it is four and a half percent lower than last year’s numbers.

In particular, if you have equity in your home, you may choose to use that money to pay off higher interest rate credit cards using a home equity loan or a home equity line of credit.  In addition to probably paying a lower interest rate, a home equity loan is spread out over many years, thereby dramatically lowering your monthly payment obligations. Because of the lower payments each month, many homeowners choose a home equity loan to pay off their credit card debt.

But is this always a good idea?

We like home equity loans and home equity lines of credit because they allow homeowners to take advantage of the equity in their homes to pay down their debt and lower their monthly payments. In fact, a home equity loan or line of credit may allow you to get your debt under control and get better control of your finances.

On the flip side, it is important to understand that, unlike a credit card, a home equity loan or line of credit is a secured loan, meaning that the bank can take your home if you fail to pay on the loan. A credit card is an unsecured loan, meaning that a bank can’t take your assets if you fail to pay your credit cards. Because of this, many banks warn homeowners to consider their options when using their home’s equity to pay off unsecured loans.

A home equity loan or line of credit, although it affords a homeowner a lower, monthly payment, is not a free deal, as the homeowner will need to pay on the loan for a longer time than he or she would a credit card.

Final Thoughts

Whether you use a home equity loan or line of credit to pay off your credit card debts will depend on your personal, financial situation, but you should consider whether a home equity loan or line of credit is a solution to your credit card problems and not simply a short-term band aid. In other words, if you have trouble controlling your spending or maintaining a budget, a home equity loan or line of credit may not be the best solution for you.

In fact, credit card companies have suffered greatly over the past, few years because credit cards are often the first bills people skip paying if times are tight. Although credit card companies cannot take your home, car or other assets if you fail to pay your credit card bills, they can take a number of actions against you, including:

• They can put pressure on you – The most common form of communication employed by creditors when seeking their payment is the phone. If you fail to pay your credit card payment, you can expect phone calls at your home. In fact, you can expect numerous phone calls throughout the day and into the evening if they can’t get a hold of you. It doesn’t stop there, either, as creditors will likely call all phone numbers they have on file for you, including your cell phone and your work number. Receiving a phone call at work from a creditor can be incredibly embarrassing, and receiving numerous phone calls throughout the day may prove to be quite stressful. Expect to receive phone calls until your payment obligations have been met.
• They can hand your debt over to a collections agency – Once your account has been handed over to a collections agency, expect phone calls and pressure to increase. Debt collection agencies get paid when they collect money, so they have plenty of incentives to get their money.
• They can place a lien on your home – Although a credit card company cannot take your home away from you, they may be able to get a judgment against you and ultimately put a lien on your home. In other words, you won’t be able to sell your home until you have paid off the debt.
• They can garnish your wages – In extreme cases, credit card companies may be able to garnish your wages. If the creditor obtains a judgment against you, they may be able, through the judgment, to garnish your wages until the debt is paid.

If you are experiencing difficulties paying your credit card bills, it is best to contact the credit card company to set up more realistic payment plans or contact a reputable consumer credit counseling agency to help you manage your credit card debt and develop a game plan for paying off the debt.

In fact, Equifax found that many Americans pay as much as 17 percent of their current income toward credit cards. The report also found that the major, metropolitan areas of the U.S. are the hardest hit, in terms of credit card debt, and residents of Florida, North Carolina, Ohio, Texas, Washington and California are having the most trouble with their credit card debt. Here is the amount of credit card debt the top metropolitan areas of the country are dealing with:

• California: $90,566,978,302
• Texas: $48,833,824,544
• Florida: $47,568,265,541
• Ohio: $28,985,502,668
• North Carolina: $22,386,064,118
• Washington: $18,288,819,367

If you are one of the millions of Americans struggling to pay off credit card debt, there are several things you can do today to begin cutting that debt down:

• Make a budget and figure out why you are spending on credit cards. Often times, overspending on credit cards is due to little more than not keeping a close eye on our monthly spending. Because of this, taking the time to sit down and make a reasonable budget – and stick to it! – is vital for conquering the credit card beast.
• If you are having difficulty making ends meet and you are worried that you will fall behind (or are already falling behind), it may be time to contact a non-profit credit counseling agency who can help negotiate better terms with your creditors and help you pay off debts without filing for bankruptcy.
• Make sacrifices to cut down on your debt. Although making large changes to your lifestyle may be difficult to do, the pride of paying off your debts and living debt-free will most certainly make up for your reservations about moving to a one-car family or getting rid of the cable television.

There are a number of great reasons why you shouldn’t be paying on credit card debt every month. Here is our list of the top five reasons why you should make 2011 the year you say good-bye to credit card debt:

1. You have better things to do with your money every month – Writing a check, each and every month, to your credit card company is not an enjoyable task. This is because there are probably countless other things you could spend that money on each month. From setting aside grocery money to handling your ever-increasing monthly gas bill, there are much better ways to allocate your monthly income.
2. You can start getting serious about saving for retirement – If you’re like many Americans, you want to save more for retirement, but you can’t seem to find the money in your budget. Now, imagine how satisfied you would feel if you were able to take the money you spend on credit card debt every month and sock it away into your 401K or IRA. Sounds exciting, doesn’t it?
3. You can concentrate on paying off other debt – From student loans to medical bills and car notes, Americans often have other installment-type debt that must be paid on a monthly basis. If you didn’t have to pay on credit card debt every month, you could instead focus on paying off your other debts so you can really lead a debt-free lifestyle.
4. You can (finally) beef up your savings – Instead of writing a check to the credit card company, write a check to yourself, and watch your personal savings grow.
5. Because paying finance charges is like throwing away your hard-earned money – You work too hard for your money, so don’t throw it away by paying unnecessary finance charges to your credit card company each month.

In fact, unlike what you may read, reducing your credit card debt may be more difficult than simply forgoing those morning lattes from your neighborhood barista. Many individuals, instead, need to make serious sacrifices in order to reduce or eliminate the credit card debt that is strangling them and preventing them from leading a comfortable, debt-free lifestyle.

If you’re ready to make the changes necessary, you will need to roll up your sleeves and be prepared to make major changes in your lifestyle. If you’re game, read on:

• Distinguish between essential expenses and non-essential expenses. Your satellite television bill? Non-essential. Your mortgage and car note? Essential. You get the idea. Don’t just think about your essentials and non-essentials: make a list and begin to get a good idea of where all those little “extras” in life are putting you financially. You may be quite shocked to see that a large portion of your income is going towards “wants” and not “needs.”
• Sell things. Don’t think too hard about this; just sell. Sell on online auctions, at a yard sale or through a consignment shop. There are no doubt things in and around your home that, at one time, you thought you really needed, but ended up being ignored and placed in the corner. Your projection television that sits alone in the basement for the majority of the year because your family gathers in the family room instead of the game room? Yep, it can go. That treadmill that you absolutely had to have, but now is used as a glorified clothes hanger in your bedroom? Yes, that goes, too.
• Work more. I know this may sound rather implausible, but if you want to pay off debts, you will consider working a second job or doing something from home. Luckily, there are plenty of work-at-home, part-time jobs available now, thanks to the Internet, so if family obligations prevent you from working more outside the home, consider looking into one of the many work-at-home websites. Consider your strengths and talents when applying for a work-at-home job, as this will likely result in a larger paycheck for you.

• Do I purchase things on impulse? Is your credit card a green light for your spending? Many individuals will purchase things with their credit cards that they normally would have never used their cash to purchase. In other words, a credit card is often very tempting when it comes to spending, so it is wise to reflect upon your recent purchases to determine if you have a habit of purchasing items on impulse with your credit card.
• Do you have a budget? If you have no idea what is going in or going out in terms of finances then you could be setting yourself up for disaster when it comes to your budget and your credit cards. Make a point of determining your monthly income and your monthly expenses. This will give you a clear picture of how much exactly you can afford to spend each month on your credit cards. In other words, determine your disposable income and don’t spend any more than that – even if you have a credit card in your wallet.
• Do you study your credit card statements? If you are opening your credit cards and paying only the minimum balance then you could be in denial about your credit card spending and your credit card balances. Take the time to open your credit card statement each month and examine your spending habits from the previous month. More often than not, simply being aware of your spending habits may thwart you from overspending.