Easing the Burden of Credit Card Debt

The disciplined use of credit has helped our country grow for the last century, so it’s rather ironic that the undisciplined use of consumer credit has serious implications for our future economic health. Credit card users are charging and carrying more debt every year. In 2005, a typical American household had over $8000 of credit card debt. Among households that did not repay their entire balance each month, the average balance was over $12,000. For more statistics concerning consumer credit in this country, see the web site of the US Federal Reserve at
http://www.federalreserve.gov/ .

Increasing credit card debt is not only a sign that we, as a nation, are spending beyond our means, it also signals that the current generation of wage earners is not saving or investing money for later use. In order to save or invest effectively, a household must have disposable income. Revolving credit card debt, in effect, eliminates disposable income and therefore greatly reduces the ability of a household to build savings or investment accounts.

Farm families are certainly not immune from the reckless use of credit cards that seems to be sweeping the U.S. Farmers do differ from the general public however, in the manner in which they use charge cards. Many farm businesses do not have separate credit cards exclusively for farm purchases.

As machinery dealerships and other agricultural suppliers shift away from the “open account” system, many purchases made by farmers end up on some type of credit card. Consequently, many farm families may have sizable amounts of farm debt carried on personal credit card accounts. Add to this the household expenses that the average American family may charge, and the result can be potentially threatening to the financial stability of both the family and their farm business.

If your credit card debt continues to increase from one month to the next, it’s time to take a proactive approach to reducing that burden. First, identify the source of the problem. If farm expenses are the root of the credit card problem, then perhaps other financing options are available at more reasonable terms. Does the farm have an operating line of credit, or have credit cards been used for this purpose?

If family living expenses are to blame for the ever increasing card balance, at least two questions must be asked. First, does the household have sufficient income for a reasonable standard of living, and second, how are household dollars spent? Are dollars spent on needed items that are part of a family budget, or are the dollars spent on frivolous items outside of a carefully planned budget?. In either case, the farming operation must not contribute to the personal credit card debt in the future, and must manage and repay farm-related debt, if the farm family is to thrive.

Ultimately, it comes down to one very solemn question: Is the farming operation providing adequate income to family members that are employed by the farm? If not, the credit card debt is just a symptom of an underlying problem: lack of profitability. It is extremely important to be honest with yourself at this point, because trying to reduce credit card debt (or any debt for that matter) without turning a profit is unrealistic and probably impossible. If credit cards have been serving as a crutch to keep the farm afloat, it’s time to seek other opportunities for employment.

In most instances this is not the case. Most of us are able to eliminate revolving credit card debt if we really want to. Remember, this process is not about pride – it’s about business and the long term well-being of your family and your farm operation. It will take more fortitude than we normally like to display, but the long-term benefits will be worth the effort.

Where should you start?

First, seek sound advice from a professional credit counselor. There are many consumer credit counseling groups that are available to anyone. Most credit card companies offer some type of assistance to cardholders that request it. The phone number for assistance should be on your statement. In many cases, interest charges can be reduced by requesting assistance and agreeing to make regular payments.

If a good share of your credit card debt is for farm purchases, talk to an agricultural lender. Be frank with the lender. Many times debt can be consolidated or moved to a lending instrument with more favorable terms. This should only be done after carefully evaluating the future profitability of the farm business and considering changing unsecured (credit card) debt to secured debt (a loan that holds some of your assets as collateral). A lender can also help you to set up an adequate line of credit as an alternative to credit card balances.

If you have resisted approaching your lender out of fear of embarrassment, try to overcome your reservations. In all honesty, your lender usually knows that you have a problem even before you do.

Second, stop making charges on your credit cards. If you seek assistance from a credit counselor, this will no doubt be their advice as well. This will require more discipline than most of us exercise routinely, but it is the crucial step in reining in consumer debt.

Next, while keeping current on all of your obligations, use any extra cash to repay the credit card that carries the highest interest rate. This won’t happen overnight – it will take persistence. Once you get that card paid off, cancel it and begin paying off the card with the next highest rate. Continue this process until most of your cards are eliminated all together. Reduce the number of credit cards that you keep to the bare minimum, preferably one.

If you can muster the discipline to pay off your credit cards, you will reap an added bonus: there will eventually be money left in your budget for savings or investment. If you are facing a mountain of credit card bills right now, that day seems light years away, but it can be done. Use the thrift that our grandparents practiced to break the cycle of revolving credit and regain the ideal of having disposable income. Today is a good day to start.

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