Sholeh Patrick

Posted: Friday, Oct 31, 2008 - 11:06:11 pm PDT
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Sholeh Patrick

Debt bailout possible

Ending a Saturday series on money saving tips for a tight economy is a focus on debt.

Americans have $900 billion in credit card debt, and are defaulting at a higher rate, according to new Federal Reserve figures.

That's prompted an unusual alliance between the Financial Services Roundtable (an industry association) and the Consumer Federation of America (consumer advocates). In a letter to the U.S. Comptroller Wednesday, the groups asked regulators to allow lenders to forgive -- by as much as 40 percent -- credit card debt owed by the most indebted consumers. The pilot project would also extend time to pay back remaining debt.

Big lenders have already agreed to the idea of a pilot program. Potential eligibility details haven't been released, but would be limited to those with the highest debt, and determined on a case-by-case basis.

Rather than bank on a bailout, it's better to reduce responsibly:

• Control spending. Medical is a good reason for debt. A new TV or glitzy Christmas isn't. Americans spend around $150 billion in holiday credit.

• Call the creditor and ask for a lower interest rate. Those with on-time monthly payment records can usually get a lower rate simply by asking. It helps to have a mail offer from another company, to convince them to change theirs.

• Transfer balances to a lower rate card, but watch for those transaction or transfer fees. Compare that one-time payout against not transferring and leaving it at the current rate.

• Pay off high interest cards first, and pay more than interest each month. Making only minimum payments on a balance of $9,000 at 15 percent will add just shy of $7,000 in interest over the 19 years it would take to pay it off.

• Consider home equity. It may be economical to consider using a lower interest, home equity line of credit to transfer high interest credit balances.

• Watch out for "rewards." Airline and other rewards sound great, but if you're carrying a card balance month to month, the interest could meet or exceed the "free" reward.

"A man in debt is so far a slave." -- Ralph Waldo Emerson

Sholeh Patrick is a columnist for the Hagadone News Network. E-mail sholehjo@hotmail.com