CREDITCOLLEGE

Credit Card Debt: A Growing Problem

According to the Federal Reserve Bank of New York, Americans’ credit card debt has surpassed $1 trillion for the first time ever. Their most recent data reveals that credit card debt soared to $1.03 trillion in the second quarter of 2023. The surge in credit card debt marks a dramatic shift from just a couple of years ago, when stimulus checks allowed housebound American consumers to save and pay down balances. As the Fed continues to hike interest rates, credit card borrowing costs are expected to hit a 40-year high this year, with rates currently averaging 22.77% according to a study done by WalletHub. When high balances meet with inflating interest rates, it places a heavy financial strain on your budget. If you’re struggling with mounting credit card debt, here are some tips to help you get started on tackling it:

Limit your credit card usage

One of the most effective ways to start chipping away at what can feel like a burdensome debt load is to first stop it from accumulating. Try to limit your card usage so you aren’t spending money you don’t have. Breaking this habit can be difficult as there is a psychological component to this, as well. When using a debit card, we see purchase amounts deducted from our checking account right away, whereas swiping your credit card does not have an immediate impact. This forms a habit of feeling psychologically detached from the purchases you’re making – only feeling the reward of enjoying your new purchase while not spending ‘real money’ you’d otherwise experience immediate consequences for. This behavior only digs you deeper into a negative financial cycle, making it even more important to break it by looking for opportunities to reduce expenses or increase income.

Transfer your balance to a 0% card

If you have good credit and are disciplined by nature, this may be a good option for you. Many credit card companies will offer a 0% balance transfer rate for a certain period of time. This will give you time to pay down your debt without accruing additional interest. When taking advantage of these offers, you will also want to be diligent about reading the fine print. Some companies may charge additional fees to process the balance transfer or could assess the full amount of interest if not paid off within the promotional time frame.

Devise a repayment plan

One tactic for repayment is called the avalanche method. List all your debts in order from highest interest rate to lowest. Then, focus on paying as much as possible towards the debt with the highest interest rate first. Don’t disregard the others, but only pay the minimum or slightly over on those until the balance with the highest rate is paid off. You may also consider closing the accounts with the highest interest rates once paid off if you think you might easily fall back on using those cards in the future. Remember, self-control is key.

Consider a debt consolidation loan

If you’re struggling with high interest credit card rates, it could be beneficial to take out a debt consolidation loan which may have a much lower interest rate and reduce your monthly payments. It can also help you consolidate your debt into one payment, making it easier to manage. Since an installment loan of this type has a clear end date, this option provides a more tangible ‘finish line’ to cross in your debt repayment journey. While a debt consolidation loan can be a great option, it is key that you remain committed to not using your credit cards. Once the loan funds have paid off all of your credit card balances, the full limits will again be available for use. Keeping the cards locked away or even possibly cancelling some of the lines of credit may be beneficial in some situations. Remember that tackling credit card debt is not an overnight process. It takes time and discipline, but it’s worth it in the end. If you are feeling overwhelmed and don’t know where to start, it may be a good idea to speak with a loan officer about your situation to determine what option may be best for you. By following these tips and taking that first courageous step, you can start to take control of your finances and work towards a debt-free future.

Sources:

https://www.cbsnews.com/news/credit-card-debt-how-to-pay-it-off-cbs-news-explains/

https://wallethub.com/edu/cc/credit-card-debt-study/24400

https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html