April 1 has been designated “Set Realistic Expectations Day” by the Securities and Exchange Commission as part of its week-long “Facts on Saving and Investing Campaign.” American Express is encouraging consumers to bite the bullet and reduce card debt. AmEx suggests consumers consolidate credit card debt into a home equity loan. AmEx also said this morning: “Your credit cards, no matter how tempting, should not be considered as a “substitute” for cash. A charge card, as opposed to a credit card, forces you to pay off the debt in full each month. Many people welcome this “forced” payment, as it helps them think twice about that spontaneous, madcap purchase.”
April 1 is recognized as “Set Realistic Expectations Day” by the Securities and Exchange Commission (SEC) as part of its week-long “Facts on Saving and Investing Campaign.” American Express Financial Advisors, one of the nation’s largest financial planning and money management companies, offers some tips for being realistic about debt:
BITE THE BULLET AND REDUCE YOUR DEBT
It’s not just the national debt that should concern Americans. Consumer debt is on the rise. U.S. consumers are in hock to the tune of more than $900 billion for student loans, car loans, credit cards and other installment debt. That doesn’t include the amount owed on home mortgages.
Here are some suggestions for getting an iron grip on your debt:
— Refinance high-rate debt. If you’re a homeowner, you may want to consider a home equity loan to help pay off your outstanding loans. For example, if you’re in the 28 percent tax bracket and you transfer $10,000 in credit card debt, at 18 percent interest, into a 9 percent home equity loan, you’ll save about $2,700 in interest payments over five years, plus you’ll save some in federal income taxes since such loans are generally tax deductible. But be careful. Talk with an advisor about whether you can afford the house payment; using your home as collateral means the bank could foreclose if you don’t make the payments.
— Build up an emergency fund. Consider saving three months of living expenses in a safe, accessible account. That way, in the event of an emergency, you’re far less likely to need to resort to your savings or checking accounts. One such place can be a money market account, where you have access to the money but it still earns interest.
— Prioritize your debts. Clear your mind, sit down and take a brutal look at your debts. Make a list of what you must pay off in full each month. Plan for these expenses and then determine how much “extra” is left over. Use the extra to make extra payments on the debts that carry the highest interest rates. You may be able to save hundreds of dollars each year.
— Use credit cards responsibly. Your credit cards, no matter how tempting, should not be considered as a “substitute” for cash. A charge card, as opposed to a credit card, forces you to pay off the debt in full each month. Many people welcome this “forced” payment, as it helps them think twice about that spontaneous, madcap purchase. Department store cards typically carry the highest interest rates, so you may want to avoid those and go for traditional credit cards if you need to carry over the debt.