IT STARTED simply enough: A young couple with a small child, hoping to build up credit, filled out credit card solicitations that came in the mail.
The couple used the cards to make household purchases, keeping up on monthly payments so well that they got even more solicitations. But then, emergencies hit, the cards were used more frequently, and spending spiraled out of control.
The situation became so bad that the East Toledoans sought credit counseling to figure out a way to pay off $30,000 on 12 credit cards.
“We got ourselves into a pickle ... and the payments were higher than we could handle, ” said the 40-year-old woman, who talked about her situation only if she were not identified.
She and her husband are not alone. Myvesta, a financial counseling service based in Rockville, Md., said its average new client this year has more than 11 credit cards and debt of more than $77,000, compared with eight cards and $52,000 in debt last year.
“It's a huge problem,” said Steve Rhode, president and co-founder of Myvesta. “There are many people who are simply living lifestyles that they can't afford, supported with borrowed money.”
U.S. consumer debt grew by $8 billion in August to nearly $2 trillion because of loans to buy cars and increased credit card charges, according to the Federal Reserve.
At the end of last year, 785 million major credit cards - Visa, MasterCard, American Express, and Discover - were in circulation in the United States, according to CardWeb.com Inc., the online site for the RAM Research Group.
The average U.S. credit card debt carried over each month per household last year was nearly $9,000, according to Cardweb.com, triple the average of $3,000 in 1990. Another online site, Carddata.com, said Americans are on track to charge more than $2 trillion on their credit and debit cards this year.
Credit card debt is pegged as one of the key causes for the increase in bankruptcy filings this year in northwest Ohio. New cases in 21 northwest Ohio counties have climbed to 7,845 this year, on a record-setting pace.
To hold down credit card debt, experts advise curbing the number of cards a household has, keeping better track of charges to try to ensure that the balance is paid off each month, and canceling cards that are no longer used.
How many cards an individual should have and how much they should be used depends somewhat on a person's discipline in controlling spending and paying off debt, experts said.
Having individual store cards is one way to get into debt troubles, said Richard Call, regional vice president in Columbus for Consumer Credit Counseling Services of the Midwest Inc.
“We do not see any advantage of doing that whatsoever,” he said, despite the offers by many stores of 10 percent or more off purchases at the time the card is opened.
“What we say is there's nothing wrong with having a credit card as long as you understand how and when to use it.”
He counsels clients - seven out of 10 of whom are driven to credit counseling because of high credit-card debt - to have only two credit cards. He recommended choosing Visa, Master Card, or Discover cards and to make sure the two cards are different in case one is not accepted at the point of purchase.
“One of those should always, always have a zero balance on it ... so it can be used when an emergency expense comes up and you can at least be given the 25 days' grace period [of interest accruing] before a payment is due,” Mr. Call said.
People who carry a balance each month automatically lose that grace period, incurring finance charges on the total amount outstanding.
Myvesta's Mr. Rhode also advised that people not carry credit card balances that are more than 34 percent of their credit limit on a card. “Anything above that percentage ... will start negatively affecting your credit score,” he said.
To try to keep a handle on spending, particularly during the upcoming holiday season, Mr. Call recommended taping a piece of an index card to the back of each credit card at the start of the month, logging purchases as they are made.
Jeff Trachtman, vice president and manager of Fifth Third Bank's bank card products unit in Cincinnati, advised consumers to be aware of the terms of credit cards, the finance interest rates, and how long an introductory rate lasts. Also, consumers should know that lenders will change rates on cards of people who make late payments or whose credit standing is worsening.
Most people won't get into trouble with one credit card, especially if the maximum credit amount is $1,000 or less, said John Walters, of the nonprofit Community Credit Counseling Specialists in Toledo.
That is based on his experience: Many clients needing help have multiple cards and have maxed out on each one.
“They have transferred the balance to get a great rate and then don't close down the first one,” he said. He added that it's fine to transfer balances to get a lower rate, but the old card needs to be closed. Closing an account requires a call to the credit card company after the balance has been paid off; it's not enough to just stop using the card.
Credit reports show all available credit cards and the total available credit, even if the person hasn't used one or two of the cards for months. Those unused cards and the credit limits can count against an individual trying to get approval for a low-interest car or home loan, experts said.
Keeping only one card handy for emergencies is a lesson learned the hard way by the East Toledo couple, who have taken five years to pay off all but two of their 12 creditors and have paid $30,000 in debt. They still have about $6,000 to pay because of accumulated interest.
When that's all done, they hope to get one credit card with a limit of $200 to $400.
The woman cautioned others not to fill out credit card offers and advised instead that they get an automated teller machine card from a bank.
“You can use it like a credit card, but it has a limit on it,” she said. “If you see something you want but you don't have the money to pay for it, that means it's out of your reach.”