Are You an Average American?

Did you know that the average American household has 13 credit, debit and store cards? It's no wonder. Most US households receive at least one offer of credit a week. They always sound like the perfect answer to your problems, too. Transfer your debt from that really big-balance card to this new one, and you won't have to pay any interest on it for six months! You'll have that debt paid off before then, right? And there's only a little balance transfer fee.

Of course, that other one will now have a zero balance. Doesn't that sound great? You'll want to use it for any new purchases, because you don't want to add to that big balance you just transferred over to the new card. And if it turns out you can't pay it off, well, by then you'll probably get another balance-transfer offer from someone else. It seems like this strategy could work forever. You might wonder, "Why doesn't everyone do it?"

The sad truth is this: You'll never get out of debt doing what credit card companies want you to do. The credit card industry collected 43 billion dollars in late-payment, over-limit, and balance-transfer fees in 2004. They aren't very consumer-friendly. They exist to make money from you.

If this situation is starting to sound familiar to you, and you're getting a sick feeling in the pit of your stomach, you don't need to feel alone. A Federal Reserve study showed that 43% of US families spend more than they earn. The only way to do that is to use credit. And it's pretty obvious that if you use credit to spend more than you earn, you are going to be in debt.

When Minimum Turns Into Maximum
Of course, as long as you make the minimum payment every month on all your cards, your credit report will look OK. You will probably be able to get even more cards! But is that actually good news? The real problem is the simple fact you will never get out of debt with a strategy like this.

Sorry about that. The answer is No.

Did you know that if you made the minimum payment on a $4,800 balance on a card with a 17% interest rate, it would take you 39 years and 7 months to pay it off? You'd pay a total of $15,619, and two-thirds of that would be interest. You'd be paying interest on restaurant meals you ate decades ago, clothes you've long since donated to Goodwill, and electronics from the stone age!

It's Not Always Your Fault
A 2004 research study showed that most credit card debt incurred by older Americans was due to the high cost of healthcare and prescription medications. In the same vein, anyone with a costly medical condition or emergency can find themselves deep in debt. Health insurance has caps on spending, and even if the caps aren't reached, a 20% co-pay is common in many policies. There are deductibles and supplies and drugs that aren't covered. A serious illness can be devastating to the average family's finances.

Another debt problem beginning to hit Americans this year is that the rates on their A.R.M.s (adjustable rate mortgages) are beginning to reset. Even with the federal reserve holding down interest rates, many people's mortgage payments have increased by 25%. If your mortgage payment is $1200, that would mean it would readjust to $1500.

So What's a Debtor to Do?
Some people take equity loans on their homes to pay off credit card debt. Of course, that means you have to pay back the equity loan-usually by increasing your mortgage payment-and if you sell your house, you'll make less profit because the equity loan will have to be satisfied. And one other thing-the interest on equity loans is higher than it is on a regular mortgage.

Others turn to one of the many credit counseling agencies advertised on TV and all over the Internet, in an attempt to discover how to get out of debt, only to find that many are simply not ethical. With mandatory counseling laws put in place for people considering bankruptcy, the industry is overwhelmed. On top of that, IRS investigations into 41 "non-profit" credit counseling agencies in May of 2006 revealed that they were not acting in the interest of the consumer and were motivated by the money they could make. They lost their tax-exempt status, and investigations into other agencies are continuing.

Bankruptcy used to be a last-ditch resort for people stuck in a bottomless pit of debt. Most bankruptcies are not the result of overspending, but occur because of huge medical bills, job loss, or divorce. In 2005, Congress passed laws that made it much more difficult to declare bankruptcy. Credit counseling is mandatory but difficult to get, especially if you need help now. Bankruptcy attorneys' fees have increased; filing fees have increased. More debt than before must be paid back to creditors.

What New Regulations Mean for Your Credit Score

You might have noticed your credit card statement looking a little different recently FOXBusiness.com - July 12, 2010 The new rules should make credit card statements easier to read and encourage people to get out of debt by paying down high bills. Here’s what you need to know about your credit score and the new regulations. Credit score 101...

Credit Q&A: Pay off cards, pay in cash, pay on time

Getting out of debt requires a strategy and additional income courier-journal.com - July 3, 2010 The best way to improve your credit score and get out of debt. Pay your bills on time without borrowing money to do so...

Budget Worksheet: How to spend your money

Budgeting can be tricky CBS MoneyNews.com - July 6, 2010 Reliance on the bank of "Mom and Dad" or the local "pay Day Advance" is unproductive when geting out of debt is your goal. Having structure and discipline can mean the difference between living comfortably within your means or bursting at the seams....

Is There a Reasonable Solution?

Yes, and it's quite simple:

 
To get out of debt, you need to make more money and change your spending habits.