Planning Article
June 2024 – By Tom Rueger CFP®
Credit card debt has increased to a record level of more than 1.12 trillion dollars. The average credit card balance is around $6,000 and a New York Fed report shows that 1 in 5 cardholders are “maxed out,” using 90% or more of their credit card limit. According to Bankrate, roughly 44% of borrowers carry credit card debt from month to month with the average interest rate topping 20%. This means it can take nearly 2 decades to pay down the debt if only the minimum payments are made.
There are a number of factors contributing to this problem. During the Covid-19 pandemic there were limited spending opportunities and the government was handing out relief payments that many used to pay down credit card balances. Since then, we have had rising prices for food, gas, housing, and just about everything else. Another factor for some younger borrowers is the resumption of student loan payments.
What are some solutions?
- Call your card issuer and try to negotiate a lower rate.
- Try to find a low or 0% interest balance transfer card and pay as much as you can (generally the low rate is for a limited time).
- A repayment plan. Either pay off the card with the highest interest rate balance first or the card with the smallest balance first.
- Set up automatic payments so that you are paying an amount that will get you out of debt and not just paying “what you have left over.”
Finally, an important part of any solution that you choose is to stick with the plan and learn to cut back on your spending so that you are eventually able to get out and stay out of debt.
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