Climbing Out of a Personal Credit Crisis

Credit trouble used to be a problem for only a small percentage of people.  Today, it's a global affliction that's causing many banks to revise their offerings.  The credit crunch is going to create some serious headaches for people in need of debt relief.

The credit crunch has brought our Treasury secretary to his knees, and shaken Wall Street to the core.  Now, it appears that the credit trouble of the financial markets has started to transfer to consumers.  Even with the $700 billion bailout package, it looks like there are challenging days forthcoming for people with credit problems.  The latest announcement by a major credit card company indicates that there'll be tough times ahead for people wanting debt relief.

Tougher restrictions

American Express recently announced a new policy that allows the company to penalize customers based on the stores they frequent and their mortgage lenders.  This policy may seem somewhat arbitrary, but it's symbolic of the risk aversion now being favored by credit card issuers.  

The companies' reaction is becoming a familiar story on the financial scene, particularly with credit cards.  Consumers have less access to funds tapping their home equity, so they're relying on their credit cards for debt relief.

Going backward

Credit trouble usually begins with an over-reliance on plastic. This type of debt can be debilitating, especially in a slumping economy.  If you find yourself relying more and more on cards to make ends meet, it's time to take drastic action.  

Why?  Because the policy initiated by American Express could easily be replicated by its competitors.  In one fell swoop, a credit card issuer could close your credit line and eliminate your access to cash.

Immediate action required

If you find yourself in a personal credit card crisis, take immediate action.  Start by getting a handle on your monthly expenses in comparison with your monthly income.  Develop a monthly budget.  Find out where you can cut back on your credit cards, and then start shaving dollars.

This may be a simple solution for people who simply overspend on frivolous items; but if you find yourself relying on credit cards to pay the rent and buy groceries, even more drastic action will be required.  Contact your credit card issuer and see if you can arrange an alternative payment plan for your debt.  Ask if they can lower the interest rate, or if they'll accept lower monthly payments.  You may even have to ask friends or family for a loan.  Taking these dramatic steps today could limit the pain in the future if the situation worsens

Times are tough for people with credit trouble, and the recent action by American Express serves as a harbinger for what's ahead.  Now more than ever, you must take action to reduce your debt load.  The government is taking steps to help the credit situation improve, but if their bailout fails, you should be prepared for the worst-case scenario.