The Importance of Credit Card Debt Reduction

With the looming financial threats of job loss, income reduction, and a recession, it makes sense that most people have made credit card debt reduction a priority. And it should very well be a priority. After all, this type of debt normally carries the largest costs in terms of interest rates. As well, given the rising rates, credit card debt reduction is one thing we all need to look at more closely if we want to not only weather this economic storm, but to make ourselves financially better off.

Taking a deeper look at interest rates, keep in mind that card rates have rising a full percentage point in the past 3 months (from 13.94% in May to 14.94% today). This means that credit card debt reduction is something we must now examine a lot more closely before rates rise farther and push us closer to insolvency.

Of course, the rising rate trends are just one reason people need to focus more closely on credit card debt reduction. Another reason includes your FICO score (or other credit-scoring method), which places a greater than 65% emphasis on just utilization and repayment history.

Borrowers who do not make credit card debt reduction a priority will normally encounter problems when there is a personal financial setback, such as a reduction in income. When the balance hovers at or near (or even above) the card limit, borrowers will be penalized through their score for having high utilization. To compound matters, if the financial setback is a bad enough and a single minimum payment is missed, the score will suffer even more on account of late payments.

Nobody likes to look at the negative possibilities, even when we are trying to hedge against personal finance catastrophes. But we have to keep the facts in mind. One, card rates are going up (so much so that the Government is now involved and reviewing putting “caps” on rates). Two, we are living through a tough economic period. Three, credit scores are only becoming more and more popular with the lenders from whom we seek credit. We now have three undeniable reasons why credit card debt reduction should be at the forefront of our financial plans.

It is amazing to hear some of the different reasons people have for carrying a certain amount of debt. And there are as many different reasons as there are to make-money-quick schemes. However, we all share one universal care when it comes to financial well-being and that is how to achieve it. Credit card debt reduction is one such way. And with things the way they are now, it makes much more sense to tackle such debt now before it is too late.