Let’s say you are lucky enough to get a new unsecured credit card. That means that your credit has to be somewhat stable, because credit card companies are no longer handing out credit like they used to. Now there is a rigorous intake process that sorts through applicants and notes those who are most likely to pay their debt on time and those who are most likely to default.

Once you get your credit, you run to the local store to make your first purchase. It could be something as innocuous as dinner for your family, or it could be a big-ticket item that you were waiting to put on credit. It may seem well and good for a while, but then your bill comes. For a lot of people it isn’t until their bills come that they realize the true relationship they have with their credit lenders. Though there is an immediate benefit, there is a long-term payout.

Credit card trends to be wary of

Credit is necessary in today’s market. If you ever expect to get a car, house or any big-ticket item, you have to have a decent credit score. However, now that lenders have been through the recession, they are changing their rules as to how credit is managed. Here are some new characteristics of credit cards to pay attention to:

1. Credit rates will continue to rise. Surveys show that four of every five credit cards have the dreaded “variable rate.” Since the recession, those variable rates have been steadily on the rise. Coming 2010 the trend is expected to continue. Although regulators have managed to change the rules of minimum payments, it still may take consumers much longer to pay off debt if they stick to the minimum payment amount.
2. Great deals are available, but beware. The credit cards with great deals are still going to be introduced to the market, but this time they come with some startling regulations. For example, Discover card advertised a 0% balance transfer deal that requires only two purchases a month. What was hidden in the fine print, however, was a hefty minimum requirement of purchases to be eligible.
3. Fees are on the rise. In the past ten years fees for over-limit purchases and late payments have risen dramatically. It’s a chronic problem with credit cards from most major lenders. For example, Citibank’s Citi Simplicity card offers no late fees when users make purchases once a month. The catch is that if you do go over your limit, the penalty rate kicks in. That rate is well over 30%.
4. Low-rate offers are also sketchy. Sure you may find a great low-introductory rate on a card, but there are many more ways for the lender to increase the fees involved. For example, Chase removed their cap on balance transfer fees for some of its lower-rate offers. That means that if you are transferring a substantial amount, expect to get the lower interest rate, but a higher fee. That fee may just about eat up any savings you got from the lower rate.

The future of credit is still in the lenders favor

Overall credit is still sided to benefit the lender more than the consumer. That’s nothing new in the world of credit, but it is projected to be worse than it was pre-recession. This time lenders are focused on bringing in as much cash as possible, as many ways as possible. They are making themselves ready to act quickly should future payment problems occur. Consumers need to be aware of the fine print and understand that benefits these days are not as transparent as they once were.

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It's going to take some time, but it is definitely worthwhile.

In part one of this series on getting rid of credit card debt, we discussed both drastic and practical ways of approaching financial recovery. Now that you have considered those first steps, it is time to figure out what to do next in order to embrace debt-free living. The following suggestions are certainly not easy, but those who are now in full debt recovery will tell you that they are certainly worthwhile.

Get on the phone and discuss your credit card debt

Now that you’ve created a snapshot of your debt, go down your list and call each credit card company. If you are late on a payment to them, explain why and give them a date by which you can send a payment. Even if it is a small payment, be honest about when you can send it in and then do exactly that.

If you do not have frequent late payments or are not behind in your bill, and if your FICO score is decent, call each credit card company and try to negotiate a better interest rate than the one that you currently have. One way of doing this is to single out one of your cards with a more affordable rate and call the companies with higher rates to inform them that you are considering sticking primarily with the one with the lower rate. Or, another way of approaching this is to research companies offering better rates and tell the credit card companies with higher rates that you are considering changing to one of those cards because of the rate difference. If a lower rate is not immediately offered, don’t be afraid to ask them to lower it. The worst thing that can happen is that they can say no and, compared to the high interest rates that you’re paying, that shouldn’t be nearly as frightening.

If the credit card company refuses to lower your interest rate, consider moving your debt to a card with a more comfortable rate and, after doing so, you may consider canceling the high rate card.

The road to debt recovery begins with a single month

After cutting your credit cards and/or negotiating a lower interest rate, look at your monthly personal budget and very carefully calculate the largest possible payment you can make on all of your balances each month. Next, add ten dollars to the minimum payment requirement offered by each credit card company. Now, add up all of the minimum payments, plus the ten dollars that you added in the previous step. If the minimum amount that the credit card company allows you to pay is lower than the maximum amount that you can afford to pay each month, go ahead and subtract the lower amount from the higher. The remaining sum is what you should consider applying to the card that is charging the highest interest rate.

After the high interest rate card is paid off, you may consider canceling that card, but don’t stop there. Now it is time to go back to the beginning and repeat the entire repayment process all over again by focusing on the card with the next highest interest rate. Do not lower the amount that your calculations permitted you to pay before the first highest card was paid off, however. Instead, continue to designate this exact same amount out of your personal budget for paying off credit card debt until it is all gone. Continue to repeat this entire process of paying your credit card debt off by assassinating the highest interest rate cards first and working your way down until you are left with cards that have affordable rates and you are debt free.

Carefully consider emergency cash options

Once you are debt free, if you ever find yourself in need of a cash advance, before turning to a credit card, carefully weigh that option against that of a loan till payday or an installment loan from a personal loan company. Always know your options, study them closely and select the one with the lowest repayment terms for your personal budget.

Making a hard decision is the first easy step to a debt-free life

It takes some sacrifice and a lot of discipline, but you really can get rid of credit-card debt for good. Relax. Breathe. Others have done it and you can too. Paying off credit-card debt can seem overwhelming when you look at your statements each month and realize that you’re not even putting a dent in it. You may have tried getting personal loans, applying for extra cash till payday, or even working a second job, but you still feel like you’re drowning in debt.

It isn’t easy to break the credit-card spending cycle but it is, in fact, completely possible. You first have to believe that financial recovery can be achieved and then you have to make the commitment to work hard at it.

Simple (but not-so-easy) steps to financial freedom

Cut up your cards. If you’re ever going to get your credit-card debt under control, you must stop adding to it. There’s no room for negotiation on this one: Cut up your credit cards. This can feel like a drastic action, but if you’re serious about getting out of debt, you cannot use credit cards.

Consider other emergency-cash options. If the thought of not having any credit cards is too much for you to handle at first, choose one card to keep for emergency use only. Store that card in a safe place or give it to someone you trust, but don’t carry it in your purse or wallet. If the card has a high credit-limit, consider asking the credit-card company to lower it. Remember, when you’re in need of emergency cash, a credit card is not your only way out. You can get a short-term loan or an installment loan online even if you have bad credit, without the risk of over-spending.

Don’t be too quick to close accounts. Don’t be too quick to close your credit cards before you’ve paid them off. Many people have made the mistake of closing their accounts when they cut up their cards, without understanding the negative effects this action would have on their credit ratings. For one thing, closing an account stops the clock on that part of your credit history. If you’ve had credit cards for a long time and have made the payments as required, that history can have a positive impact on your credit rating. Closing an account can also negatively affect your debt-to-credit ratio, which can have a direct affect on your credit score. So cut up your cards, but do some research and ask around before you cancel any accounts.

Be honest with yourself. Take an honest look at your credit-card statements and tally up what you owe. This is scary for people who purposely avoid looking at the bottom line because of the stress it causes. Ironically, however, not knowing what you actually owe can be the most stressful part of all. Make a list of your account balances and make a note of the interest rate on each. List the balances in descending order of interest rates, so that the account with the highest interest rate is at the top of the list. Next to each entry, write down the minimum required monthly payment. Finally, note the name and phone number of each credit card company.

Make a realistic personal budget. Once you’ve decided to get serious about credit-card debt recovery, have cut up your cards and taken an honest look at what you owe, take some time to make a realistic personal budget setting forth your monthly income and expenses. Look at what’s left after deducting the essentials – rent or mortgage, car payment, utilities, food, etc., — and decide how much of your disposable monthly income you can devote to paying off your credit-card debt.

What’s next?

Read part two of this series for suggestions about what to do next. There, you’ll find advice about negotiating with credit card companies and getting rid of account balances with high interest rates. If you exercise some willpower and resolve and take these suggestions seriously, you really can find your way to a debt-free life, once and for all.

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Americans surveyed

Foreclosures, bad money lenders, and unscrupulous credit card company tactics took their toll on the American public throughout 2009. According to a new poll done by the AP-Gfk, 42% of Americans labeled 2009 as a “very bad year.” The last time the poll was done was back in 2006 when 39% considered it a “good year.” The results of the survey are telling of how the public is processing the hard recession and its affect on the economy.

On the bright side

Results of the survey showed that though Americans believe that 2009 was a harrowing year in terms of the economy, they also believe that 2010 will be a good year. The traditional optimism of the American public is still alive despite the recession. In fact, 72% of those surveyed are anticipating better times for the economy and almost 80% are anticipating better times for their individual families.

Mari Flanigan of South Milwaukee, Wisconsin is one of the country’s hopefuls. Flanigan is a 36-year old unemployed woman whose business was pushed out of the market due to competition. She said, “My finances now are in shambles, but I believe that now the recession is over, things should turn around.” Despite her optimism she still admitted, “Financially, I am scared.” Her plan to recover includes going back to school, rather than jumping into the job market again. She said, “I’d rather find something where I make less money, but do something I love.”

The hopeful future and a resilient nation

The survey done by the AP-Gfk also showed how resilient the American public is. Take Marcia Andrews of Blairsville, Pennsylvania, for example. She was a high school nurse in the beginning of 2009 but due to budget cuts in education, her position was eliminated. At 69-years old, there were not a lot of options readily available. She said, “It was the wrong place and the wrong time for me.” Now, almost a year later she is in the beginning stages of converting an old house into a bed-and-breakfast. Though the economy is down, she was able to sort through money lenders, personal finances and debt to find a great business loan for funding.

Then there is James Lewis of Alton, Illinois. His view on the recession is harsh. He stated, “Everything [was] done wrong. Everybody [was] losing their 401k. Some people losing their house and their retirement.” Though he is critical of government ways, he also acknowledges that 2009 was not “too bad” for him personally. His hope is that once the economy stabilizes he will have another shot at finding a better job.

What will 2010 hold

Regardless of how people are responding now, the true state of the economy will unfold in just a few short months. Though 2009 was riddled with record numbers of foreclosures, bad money lenders, and heightened unemployment rates, there is still hope that the unknown of 2010 will be positive. Only time will tell what state the economy will be in, but surveys are showing that public perception is optimistic. As one unemployed American said, “In times like these, sometimes all you have is your attitude.”

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Short term loans are becoming a standard in today’s economy. Many people rely on supplemental income and resources to pay bills, however with the recession in full swing, those options are quickly dwindling. Maneuvering debt is becoming more and more difficult and shortfalls in cash are creating a new market for short term loan funding.

A short term loan is a reliable way to apply for upfront funding. Normally the requirements are you must be over 18, be employed and have an active bank account to apply. If your application is accepted, the lending company calculates how much you qualify for and it’s deposited into your account within a few days, sometimes within just a few hours. You pay back the amount automatically on your next payday.

The simplicity of these loans has only grown their popularity and today’s economy is fueling their usage even more.

Credit card companies

Many Americans rely on credit cards to handle financial shortfalls, however the industry is quickly changing in response to the recession. Here are some new tactics credit companies are using:

1. Cutting holders’ limits- even if they are below their current balance
   The problem here is that this has a huge impact on card holders’ credit scores. Your available credit to actual credit charges is a deciding factor in your FICO calculation. With balances being cut, it seems like you’ve reached, and exceeded, your limit, when in reality you haven’t.
2. Raising interest rates for all customers
   Although the Federal Reserve brought short-term rates down tremendously, credit card companies are universally raising their rates. The result is card holders will need more time to pay off their debt and incur a lot more interest charges throughout the process.
3. APR penalties reaching as high as 32%
   Credit card companies are penalizing card holders with huge interest jumps. If a customer pays one day late or exceeds their limit by $1, per the new rules, they can suffer tremendous penalty fees. According to a recent survey of credit card companies, almost 90% allow the APR to jump if a customer makes one seemingly innocuous error.

The recession is having a huge affect on the credit card industry and in turn, forcing card holders to compensate for their losses. It’s hard to say when the market will balance itself out and whether or not that will truly bring things back to normal.

Consumers are on their own

Consumers need to have other ways of finding funding. Whether it’s short term loans, downsizing or strict budgeting, people need to tighten up their finances. The huge bailout package is expected to work its way through the economy and actually bring some form of stability mid-2010. What this stability will entail, no one knows just yet. It’s best for Americans to grow accustomed to living thrifty until some indication of an end to the recession and balance of the economy are reached.

Where do credit cards fit

Credit card companies are struggling to manage their businesses just like every company in the U.S. market. Cutting card holders’ limits, raising interest rates and applying high APR penalties, are all tactics being used to minimize their losses. Unfortunately even good customers are seeing these changes and their credit scores are suffering as a result. One analyst suggests cutting down on credit card usage as much as possible until the market stabilizes.

Although credit cards formerly have been accepted as convenient options to paying bills, in the economy today they are bringing many problems along with their usage. It’s simpler and more reliable to look to alternative funding such as short term loans or installment loans as a way to cover bills. There are no penalties and the relationship with this type of lender is short and straightforward. In today’s economy, short and straightforward is the best you can hope for.