Playing Your Cards Right


It’s not hard to get out of debt, but it takes some time


By Lynn N. Duke

NYT Regional Newspapers


Was it the champagne or the quartet of iPods? The pomegranate martinis or the last-minute dash through the toy aisle?


Some Americans don’t feel their New Year’s hangover until the middle of the month when the credit card bills come rolling and the cost of holiday cheer is there in black and white. For others, the credit card bills loom year round.


Getting out from under that pile of debt seems almost impossible, but the good news is that it’s not.


Pay on time and pay more than the minimum required each month – without incurring new charges – and you’ll be out of debt faster and cheaper than the credit card companies would like.


“Debt itself is not the problem, it’s the cost of that debt,” said Scott Bilker, creator of


Although fewer people said they would be suing credit cards for holiday purchases this year, average credit card debt per household is at an all-time high in the United States and has more than tripled – from $2,966 to $9, 312 – since 1990, according to


That’s because for a growing number of Americans, credit cards are no longer used for holiday splurges but as a survival tool that many have turned to as other safety nets – job stability, medical insurance – have disappeared in an increasingly volatile economy.


“Most lower- and middle-income households have exhausted their options for paying down debt,” said Tamara Draut, director of the economic opportunity program at Demos, a non-partisan public policy research and advocacy organization based in New York. “Unless we see a real economic turnaround, people will be using their credit cards to keep the heat and the lights on.”


Revolving debt can quickly become a quagmire for consumers since the rules favor the banking industry, Draut said. Being even a minute late – read the fine print on the contract – allows most credit card companies to jack up your interest rate, often as high as 29 percent. And once one creditor raises  your rate, the others are more likely to do the same.


Making timely payments will save you a bundle in interest and penalties, but managing your debt can save you even more. Assuming you have multiple cards – on average, there are 13.4 cards per U.S. household – pay off the one with the highest interest rate first, which hopefully will also have the smallest balance, according to Kay Shirley, CFP, president of the Atlanta-based Financial Development Corp.


Bilker suggests negotiating lower interest rates on multiple cards you’re paying off, or moving as much debt as possible to a single low interest card. In some cases, this is cheaper than even a home equity loan and might be easier than you think, although it will take some legwork.


“Credit card companies should remain very competitive because the market is so saturated,” Bilker said. “They’re all going to be trying to steal each other’s customers.”


“It takes time to negotiate with credit card companies, but what’s your time worth? It could be the best paying job you’ll ever have. If it takes you 10 hours to negotiate your interest rate down to where it saves you $1,000, that’s $100 an hour.”


Lopping off three percentage points from 18 to 15 percent on the average U.S. household’s credit card debt of $9,312, will cut five years and save more than $4,000 in interest. Doubling the minimum payment at the reduced rate will pay off the balance in two years while paying $1,437 interest – a savings of almost $10,000 compared to the original terms of the loan.


But Draut said the competition is limited.


“The competition really is at the margins, for the people who want frequent flyer miles or other perks that go along with some cards,” she said. “People who are in revolving debt have far fewer options.”


Higher minimum monthly payments are in everyone’s future. Spurred by consumer watchdog groups, new federal guidelines require banks to increase the minimum monthly payments to include all fees an interest incurred during the month as well as covering at least 1 percent of the principal on the loan.


For some cardholders, this means an increase from 2 percent to up to 4 percent, effectively doubling their monthly credit card bills.


This can be scary news for people who are barely scraping together their minimum payments, but in the long run it will help them pay off the debt more quickly, advocates say. And paying it off may the only alternatives, since recent changes in bankruptcy law have made it harde to discharge credit-card debt by filing for personal bankruptcy.


Credit counseling also is an option, but only when others have been exhausted. And Draut cautioned that a proliferation of “fake non-profits” have made it harder to find a reputable agency.


“Avoid any claim that they’ll erase all of your debt,” Draut said. “If it sounds too good, to be true, it is.” She recommends finding an agency through the National Foundation for Credit Counseling,


Although these agencies have some negotiating clout with creditors that you do not, Shirley said, it sill comes down to personal responsibility.


“Of all the things in your life to have control over, the most important is your finances, because everything comes from the money,” Bilker said. There’s nothing more important than being able to handle your finances.”