For more information, contact Stephanie Ely, (937) 775-3232. November 2, 2009 What you can do to control credit card debt: tips from Wright State finance expert There are several things consumers can do to cope with the maze of credit card changes now under way by giants of the industry like Visa, MasterCard and Discover, according to William Wood, a Wright State University Raj Soin College of Business faculty member and expert in financial services. “Because of the recession and other economic factors, many of the large banks that issue these credit cards are increasing their fees, reducing balances and even canceling cards that reflect infrequent use,” said Wood, who directs the financial services program at the college. He outlined several steps consumers should follow: • Always pay your bill on time because late payments can bring penalties, which will cost you more money over time, and also hurt your credit score. • Try to pay off your credit card bill each month to avoid the accumulation of interest fees on the outstanding balance. • If you are trying to pay down a balance, pay the minimum on your lower interest cards and pay as much as you can afford on your higher interest rate cards. • Pay more attention to how your card works and the rules you need to follow to avoid excess fees. • If the interest rate seems high, contact your credit card company to seek a lower rate on your outstanding balance if your payment history is good and without late fees. “The credit card companies want to keep your business, so you shouldn’t be afraid to contact them and try to negotiate a lower interest rate,” Wood said. • Use all your credit cards occasionally for small purchases that can be paid off each month. “This keeps your card current and reduces the chances of a card being terminated over lack of use,” he said. When cards are canceled by the credit issuer, that lowers your credit score and increases the ratio of credit used to available credit, which also lowers your credit score. • Work to keep the balances for all of your cards no higher than 25 to 35 percent of the total available balance for all the cards. “This is really important because the ratio of your credit balance to available credit is a key factor in determining your credit score,” he said. • Be selective in terminating one of those cards with a zero balance because your ratio of credit balance to available credit will increase, which can hurt your credit score. “For example, if you terminate a card with a $10,000 limit when your totals for all your open credit card accounts are $5,000 owed and $40,000 available credit, you will be left with the $5,000 balance on $30,000 available credit, which increases your ratio of debt to available credit and thus adversely affects your credit score.” Wood, whose expertise includes personal financial planning, retirement planning and estate planning, has taught at Wright State since 1996. He directs an innovative practicum in financial planning that recently was honored with a business education award from the Association to Advance Collegiate Schools of Business. # # # NOTE: Contact Wood at (937) 775-3175 or william.wood@wright.edu.
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