Debt-saddled consumers, beware: You may experience sticker shock when you receive your next credit card statements, thanks to the Credit CARD Act of 2009.
CREDIT CARD STATEMENT
STICKER SHOCK
What's happening: Consumers are getting new credit card statements that, for the first time, show how long it may take to pay off debt. That realization may shock some into action, but experts fear others may hide their heads in the sand.
What consumers should do: Face up to the situation and get help if you need it, experts say.
The statements, which now include a payout forecast that shows how much interest you'll pay and how long it will take to get out of debt by making the minimum payments, will likely invoke some anxiety, psychologists and credit counselors agree. But the extra concern may be the push consumers need to get out of debt for good.
"A lot of people never sit down and calculate how long it would take them to pay their credit card debt off if they make the minimum payment," says Mary Gresham, an Atlanta-based clinical psychologist who specializes in financial issues. As a result, "they have no anxiety about it and very little motivation to change their spending habits and pay the debt off."
But consumers who have only focused in the past on whether the minimum payments fit into their monthly budgets will now be reminded month after month of how making minimum payments could cost them hundreds or even thousands more over the long run. The normal reaction to that knowledge should be a sense of discomfort, Gresham says. But that is ultimately a good thing. "If you anticipate that you're going to be in debt for 15 years over this small bill, then you begin to take action. You change your spending habits and make as big a payment as you can."
Reaching out for help The new statements don't just show consumers how perilous their financial situations are; they also provide consumers with a path for seeking help, as all statements must include a toll-free number that consumers can call for information on credit counseling. Since Feb. 22, when major provisions of the Credit CARD Act and the new statements went into effect, credit counselors have seen a definite shift in consumer behavior as more people have called counseling organizations looking for help.
Too much anxiety creates an avoidance of the problem.
-- Mary Gresham
Clinical psychologist
"We're already hearing from consumers who are noticing the changes, and the payout disclosures are often mentioned as the motivating factor for seeking help," says Bruce McClary, a spokesman for ClearPoint Credit Counseling Solutions in Richmond, Va.
Money Management International, based in Houston, created a special telephone number to track calls that resulted from the revised credit card statements. In the two weeks following Feb. 22, the organization received nearly 1,500 calls, says spokeswoman Tanisha Warner.
Farmington Hills, Mich.-based GreenPath Debt Solutions also created a special number to track Credit CARD Act-related calls, and they've seen the number of calls double since Feb. 22, says spokesman Andrew Johnson. "We can say the CARD Act has us seeing an increase in traffic," Johnson says.
Using anxiety wisely While many people will take on a new sense of urgency when it comes to paying down credit card debt, thanks to the revised statements, others may become overwhelmed by anxiety.
"Too much anxiety creates an avoidance of the problem," says Gresham. "You may tear up the bill, throw it away or not want to deal with it because you don't have any money instead of calling your creditors and saying, 'Here's my situation.'"
At the other end of the spectrum -- and an even bigger problem, Gresham says -- is having no anxiety when looking at a credit card statement and seeing a lot of debt that needs to be paid off. "If your anxiety level is too low, you need to look a little more carefully at your bill," she says.
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Physical, emotional consequences
Those who feel more anxious or stressed out as a result of the revised statement may experience physical and emotional symptoms including muscle tension, headaches, irregular heart rate, loss of concentration, irritability and sleeping difficulties, according to the National Institutes of Health.
Self-help strategies, such as eating right, exercising, meditation and avoiding caffeine and alcohol, may not work for those who are paralyzed by fear or feel like they are hindered in their day-to-day life as a result of their financial worries. Those individuals should seek the help of a psychological professional, Gresham advises. If the increased anxiety is bothersome, yet manageable, a credit counselor can help consumers ease their fears by suggesting a course of action such as a payment plan or a new household budget.
All in all, the revised credit card statements are good for consumers, Gresham says, because "you want to be anxious about owing this amount of consumer debt at this interest rate. A little bit of anxiety motivates you."
Melinda Opperman, a spokeswoman for Springboard Nonprofit Consumer Credit Management, based in Riverside, Calif., agrees.
"With knowledge comes power and having that knowledge is going to make consumers more in control and give them more personal responsibility," she says.
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