These days, nearly everyone is concerned about credit card debt reduction… and they should be. Without question, credit card debt involves one of the largest interest rates. In order for consumers to improve their financial health, particularly with the potential for job loss or reduced income, credit card debt reduction must be a priority.
Taking a deeper look at interest rates, keep in mind that card rates have rising a full percentage point in the past 3 months (from 13.94% in May to 14.94% today). This means that credit card debt reduction is something we must now examine a lot more closely before rates rise farther and push us closer to insolvency.
Of course, the rising rate trends are just one reason people need to focus more closely on credit card debt reduction. Another reason includes your FICO score (or other credit-scoring method), which places a greater than 65% emphasis on just utilization and repayment history.
When credit card debt reduction is not a priority, people will be more likely to use credit to the maximum available limit. This is often okay because the payments are low or the full balance is not high. But, if a reduction in income cripples the ability to repay, the credit score will suffer because utilization is high. If the financial strain is substantial and a payment is missed, the late payment will also reflect in the credit score, thereby punishing the borrower with a much lower score.
Nobody likes to look at the negative possibilities, even when we are trying to hedge against personal finance catastrophes. But we have to keep the facts in mind. One, card rates are going up (so much so that the Government is now involved and reviewing putting “caps” on rates). Two, we are living through a tough economic period. Three, credit scores are only becoming more and more well loved with the lenders from whom we seek credit. We now have three undeniable reasons why credit card debt reduction should be at the forefront of our financial plans.
We have our own personal reasons for carrying debt on credit cards. Whether we are comfortable given a perceived job stability or we simply are not bothered by large debt, it does not matter. But, when it comes to dollars and cents (and most of care about that!) it is strongly recommended that we examine how credit card debt reduction can help us now and into the future, particularly as it relates to our financial well-being.