Credit and Debt

Poll Reveals Close to One in Five Consumers Comfortable Carrying Debt 

A recent National Foundation for Credit Counseling (NFCC) online poll revealed that close to one in five consumers, 18 percent, believe that carrying credit card debt over from month-to-month is a responsible way to manage his or her finances.

"This data suggests that not only are many Americans using credit cards to fund a lifestyle their income can't support, but they are comfortable doing so," said Gail Cunningham, spokesperson for the NFCC. 

Consumers need to be aware of the consequences associated with continually carrying credit card debt from month to month, some of which are below:

  • Interest on a credit card is typically calculated on an average daily balance.  For those who carry a balance over from the previous cycle, interest is not only charged on the unpaid balance, but on any new purchases added to the balance. 
  • With interested added onto the balance month after month, consumers end up paying interest on the interest.
  • Carrying a balance has the potential to negatively impact a person's debt to credit ratio, one of the main components of credit scores.
  • A higher balance decreases the amount of credit available for future purchases.

However, there can also be disadvantages to charging too little. At the other end of the spectrum, a similar number of respondents, 21 percent, indicated that they do not use credit cards.  While this approach to money management can avoid many financial pitfalls, it too has its problems:

  • Although it is possible to pay cash or use a debit card for daily expenses, these types of transactions are usually not reported to the credit bureau.  Most people need credit for major purchases such as a house or car, but without a thick and positive credit file, credit may be denied.
  • Without credit cards, people miss out on the convenience of being able to purchase items or pay for services when cash is not readily available.
  • Carrying cash is risky, as the money could be lost or stolen, whereas credit cards often offer consumer protection features including those against loss.
  • Credit cards provide a safety net for emergency situations.

The majority of poll respondents, 61 percent, believe that paying credit card debt in full each month is the only responsible way to manage personal finances. The benefits associated with this type of behavior far outweigh any disadvantages and include the following:

  • Timely bill payments and a low credit utilization ratio are typically the top weighted elements in credit scoring models. Therefore, this type of behavior could have a positive impact on an individual's credit scores.
  • The convenience of using credit can be enjoyed without paying any interest or penalties.
  • The entire line of credit remains available for future use.
  • Stress and worries of being over-extended are avoided.

People who repeatedly find themselves unable to satisfy their monthly debt obligations in full would be well-served by reaching out to an NFCC Member Agency, like CCCS of Chattanooga, for a one-on-one financial review with an NFCC Certified Financial Professional.

The actual poll question and answer results are below:

Which of the following best describes your attitude toward debt?

    1. I believe that carrying credit card debt over from month-to-month is a fact of life and is a responsible way to manage my finances = 18%
    2. I believe that paying credit card debt in full each month is the only responsible way to manage my finances = 61%
    3. I do not use credit cards = 21%

Note: The NFCC's July Financial Literacy Opinion Index was conducted via the homepage of the NFCC website www.DebtAdvice.org.


The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation's largest and longest serving national nonprofit credit counseling organization. The NFCC's mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services. NFCC Members annually help millions of consumers through more than 600 community-based offices nationwide. For free and affordable confidential advice through a reputable NFCC Member, call (800) 388-2227, (en Español (800) 682-9832) or visit www.nfcc.org.

8 Credit-Building Tips for College Students

college studentsWhile parents' mail boxes are filling with credit card bills from summer vacations and back-to-school shopping, college students are likely receiving offers for credit cards of their own. 

Due to the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act), young adults under the age of 21 applying for credit now must demonstrate the ability to pay or have a co-signer in order to be approved.  Thus, the 21-year-old college student has replaced the entering freshman as the likely target for credit card marketing.

"Building a positive credit history while in college can certainly help the young professional move on with his or her post-graduation life," said LaTricia Schobert, director of Consumer Credit Counseling Service (CCCS).  "On the flip side, abusing credit can work against a person when trying to land a job, lease an apartment or buy a vehicle."

The NFCC's 2013 Financial Literacy Survey found that 33 percent of respondents indicated they learned the most about personal finance at home.  Although at first glance this may appear to be positive, problems often arise if the parents have poor financial habits which the children observe and subsequently carry into their own financial lives.

Furthermore, the survey revealed that only five percent attributed their personal finance knowledge to what they learned at school.  This number is not surprising, as many states do not include a personal finance course as a requirement for graduation from high school. 

Stepping into the world of credit without adequate personal finance training is asking for trouble, as responsibly managing credit is critical to building a solid financial future. CCCS recommends that young adults consider the following tips for successfully navigating credit:

  • Start slowly.  Don't apply for more credit than is needed.  A little plastic can go a long way, particularly in the wallet of someone new to credit.
  • Don't act like a kid in the credit candy store.  It can be tempting to splurge on music downloads and late-night pizzas, but small purchases can add up quickly. 
  • Never, ever charge more than can be paid in full when the bill arrives.  This is the cornerstone to successfully managing credit.  Use this financial trick:  Record each charge in the check register and deduct the amount from the balance just as though a check had been cashed.  This method guarantees that the funds will be available when it's time to pay the bill.
  • Choose the right card.  New homework assignment: Research what's behind the credit card offers. Fully understand the terms, interest rate, fees and credit limit, as these features will impact the final decision.  Some student cards also offer rewards such as miles or points that can be redeemed, but read the fine print before signing on the dotted line.
  • Think long term.  Negative marks on a credit file can follow a person for years.  Evaluate charging decisions in light of tomorrow, not today.
  • Protect the card.  Identity theft is rampant on campuses, and a credit card lying on a desk is as good as gold to a thief.  Since studies show that identity theft is often committed by someone the victim knows, don't be naively trusting. 
  • Don't allow others to use the card, as regardless of who runs up the debt, payment remains the cardholder's responsibility.
  • If things get out of control, remember that businesses still accept cash, and a debit card can be used for payment in most locations.  Don't hesitate to put the credit card away if things get out of hand. 

"The college student potentially has 50 years or more of credit life ahead of him or her, making it critical that sound financial habits are established at a young age," continued Schobert.  "Credit can be a friend or a foe.  That outcome is determined by whose hand is holding the plastic." 

Before applying for a credit card, young adults would be well-served by reaching out to Consumer Credit Counseling Service for a one-on-one financial review with an NFCC Certified Financial Professional.  For more information, call (423) 490-5620 or email cccsreception@partnershipfca.com


Q.Are you a candidate for credit counseling?
A. If you feel overwhelmed by your debts, or would like someone to help you make payment arrangements with your creditors, you may want to use a credit counseling agency. These are organizations that specialize in helping you deal with your debt by working out a special payment plan with your creditors.

Some organizations offer a plan to reduce or eliminate your debt. Their plan can be a systematic way to pay down your outstanding debt through monthly deposits to the agency, which will then distribute these funds to your creditors. By participating in the program, you may benefit from reduced or waived finance charges and fewer calls from collection agencies. And when you have completed your payments, they may help you reestablish credit.
How can you tell if credit counseling may be an option for you? Take the debt test below and if you answer "yes" to most or all of the questions, you may be a candidate.


1. Do you have less than three months' of expenses in a cash reserve?
2. Are you using credit cards for items you used to buy with cash?
3. Are you afraid to know the total that you currently owe on your long-term debts?
4. Have you reached the limit on your credit cards?
5. Can you only afford to make the minimum payments on your debts?
6. Would losing your job jeopardize your ability to make payments right away?
If you decide to use a credit counseling agency, make sure you choose one with a good reputation. While all such organizations are required to maintain non-profit status, some maintain close ties with for-profit corporations with questionable tactics. Use the resources below to help you find a reputable agency in your area.
Some people avoid credit counseling because they are concerned that it will "ruin their credit rating." Don't let this deter you from seeking help! While it's true that some lenders may view a debt repayment plan as a negative, it certainly won't look worse than having multiple late payments on one or more credit cards.

©2010-2012 Financial Finesse, Inc. All rights reserved.
This document contains confidential and proprietary information of Financial Finesse, Inc. and is intended solely for use of
the intended recipient. Unauthorized reproduction or distribution is strictly prohibited. The information contained in this
document is not to be construed as advice. If you have questions about your financial situation, you should contact a
financial professional.
RESOURCES:
National Foundation for Credit Counseling
1-800-388-2227
www.debtadvice.org
Association of Independent Consumer Credit Counseling Agencies
(AICCCA)
www.aiccca.org/
Federal Trade Commission - Choosing a Credit Counselor
1-877-FTC-HELP (1-877-382-4357)
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm
Nonprofit Debt Counseling Organizations
http://dmoz.org/Home/Personal_Finance/Money_Management/Credit/Counseling_and_Repair/Non-Profit_Counseling/

Chattanooga: 1-800-459-2227 | cccsfd@partnershipfca.com