Bankruptcy Introduction

By Mellody Hobson

Nov. 20, 2005 —  Credit card debt. Ick. Most Americans have it. In fact, the average American carries more than $9,000 of credit card debt … and growing.

So what do you do to get those cards paid off and keep them paid off? "Good Morning America " Financial Contributor Mellody Hobson answers a few credit-related questions and offers tips on how to get control of your credit card debt before it gets control of you.

Q: Are there any low rate cards you would recommend?
Although I recommend paying off your credit card balance each month, the interest rate your credit card charges, known as the annual percentage rate, plays an important role if you ever do maintain a balance. The average credit card APR in the United States is 13.37 percent (Americans have $9,312 in credit card debt — according to cardweb.com). However, more than half of the states in the United States have no cap on the amount a credit card company can charge a consumer.

Credit Bureaus Information

A few suggestions:

Capital One Platinum: Prestige — Ongoing Interest Rate: As low as 5.90 percent.
Introductory APR: Same as ongoing.
Balance Transfer Rate: Same as ongoing.
Annual Fee: None.

Discover Card Miles Card — Ongoing Interest Rate: As low as 9.99 percent.
Introductory APR: As low as zero percent for 12 months.
Balance Transfer Rate: As low as zero percent for 12 months, then same as ongoing.
Annual Fee: None.
Also: Offers airline mile rewards program.

American Express One Card — the One Card does not have a low APR (between 12.99 and 14.99 percent), but it is a terrific card to use for spending and saving. The American Express One Card is linked to a FDIC-insured high-yield savings account. With all eligible purchases, 1 percent will be automatically deposited into this savings account.

Should you transfer your balances to the card with the lowest APR?
I am never very enthusiastic about transferring balances from one credit card to another because it often creates a false sense of security for individuals and prompts people to spend again on the old card. Additionally, you need to be careful of introductory zero percent rates which could balloon to rates higher than your previous card following a six-month grace period.

How can you avoid credit-card debt?

15 Tips To Protect Against Identity and Credit Card Theft

Commit, Call, Cancel and Cut
America 's outstanding credit card bill is currently at $800 billion — a hefty sum and a major reason for consumer debt issues. If more than 25 percent of your take-home pay goes directly toward paying down your credit cards, you are in over your head. Therefore, you should resolve to take "charge" of your cards. First, call your credit card companies to try to negotiate a lower interest rate. After you have called to re-negotiate your rates, cancel all of them except one, which you should only use in an emergency situation. In addition, once you have canceled your cards, cut them up. Lastly, start using your debit card or cash for purchases to ensure that you are only spending what you have in the bank. This will force you to finance your purchases from your cash flow only and prevent you from buying things you cannot really afford.

Keep only one credit card
Having only one card makes it much easier to keep track of the rules and allows you to avoid the paper chase of multiple cards. In order to keep you from using your card for unnecessary purchase, put a Post-it note on your card with the message: "For emergency use only."

If you cannot get out of credit card debt, should you use the services of a debt consolidator?
Most credit counseling and debt consolidation organizations are nonprofit, and many are actually funded by major creditors as a way to recover bad debts. Even though most credit counseling services are "nonprofit," some debt management programs charge set-up fees and/or ongoing processing fees.

Developing Measures to Control Credit Card Fraud

The "Good Guys" — With more than 1,300 offices nationwide, the largest network of credit counseling services is the National Foundation for Credit Counseling. Founded in 1951, this organization imposes stringent accreditation guidelines and a certification process for credit counselors. Many NFCC-accredited agencies rely on the United Way or government grants for part of their funding. At these agencies — the largest of which is the Consumer Credit Counseling Service — consumers can meet with counselors face to face, arrange for long-term budget guidance and establish debt management plans, all for a nominal or no fee. On average, clients of NFCC-affiliated agencies owe more than $26,500 — more than 88 percent of their average income of about $30,000.

The not so good — Many of the newer debt consolidation agencies do most of their business by phone or fax. These organizations rely heavily on advertising, particularly through the telephone, Internet and infomercials. Though they have attracted thousands of clients, they have also been subject to numerous complaints. A frequent complaint stems from the fact that several agencies charge a fee themselves that is equivalent to one month's worth of payments. Many consumers are unaware that their first payment goes to the consolidator and not to their creditors, and this confusion often results in late payments which can damage your credit rating.

Mellody Hobson, president of Ariel Capital Management (arielmutualfunds.com) in Chicago , is "Good Morning America 's" personal finance expert.

Choose your credit card wisely