More and more Americans are experiencing anxiety about their credit card debt. The survey shows that 82 percent of respondents worry about having too much debt they can’t afford to pay off.Are you one of them?
If you are worrying about your credit card debt and what happens if you default on a payday loan, you are not alone. Keep on reading to find out the main reasons for having this debt and the best ways to reduce it.
Credit Card Debt among American Consumers
We are living in challenging and uncertain times. Taking out some lending tools has already become typical for most of us. People take out student loans to get a degree, request an auto loan to buy a new car, take out a mortgage to purchase their own home, and often rely on credit cards. Remember that these lending options only work for the short term.
How much credit card debt do you have today? Almost 31% of consumers owe at least $6,000, and 15% of Americans have credit card debt of $10,000 and more. Many consumers saw an increase in their credit card debt in 2022. Hence, almost 82% of respondents worry about it.
Common Reasons for Getting into Debt
Of course, there may be numerous factors that lead you to credit card debt, but there is always the main reason that stands out. Getting your personal finances back on track can be challenging as you carry a credit card balance each month and can’t repay it.
The rising inflation rate is also a widespread reason, as consumers can’t afford higher prices. Income doesn’t increase together with inflation, so many Americans experience issues with their cash flow. These issues generally lead to more debt. Here are the main reasons for having this type of debt among Americans:
- Insufficient income and increased expenses: 23.6%
- Unforeseen costs: 20.1%
- Urgent medical expenses: 12.1%
- Auto repairs: 10.6%
- Impulse spending: 9.9%
- Sudden unemployment: 9.6%
- Divorce: 2.6%
The following chart from the Center for Microeconomic Data shows the total debt balance and its composition. The total debt balance amounted to $16.51 trillion in the third quarter of 2022. It comprises mortgage debt (71%), HE revolving debt (2%), auto loan debt (9%), credit card debt (6%), student loan debt (10%), and other debt (3%). Other types of debt include consumer loans and retail cards.
Rising Share of Consumers Living Paycheck to Paycheck
Inflation and economic downturn cause millions of Americans to live paycheck to paycheck. The share of such consumers rose to 63% this year. As a result, more households feel pressed for funds.
When you don’t have enough income to support your daily needs and pay for necessities, you may look for crediting options to get additional money. While taking out a small loan or a credit card may be useful in some cases, even high-income earners tend to rely on lending tools these days.
Ways to Lower Your Credit Card Debt
As credit card balances have increased this year, many Americans seek ways to reduce their credit card debt. You need to use a suitable approach to pay the existing balance off. We are going to discuss the most popular approaches and strategies to help you find the most suitable option.
1. Make a Budget
It is the first step to getting out of any debt. You need to create a budget a stick to it. Over 70 percent of Americans don’t have a budget and have no idea of where their money goes. You will only accumulate debt if you don’t know how well you manage your personal funds.
Having a budget means you control your money and understand what needs to be done to avoid too much debt. Even when you work your way toward becoming financially independent again, you will still require a budget to remain on track and prevent debt accumulation in the future.
2. Think of Debt Consolidation
Are your debt payments too high? Is your credit card debt too overwhelming? You may want to consolidate your debt payments into a single one. This option works best for consumers whose credit rating is good or fair. Getting a 0% balance transfer credit card is one of the solutions.
It helps consumers save their funds in the long run, as the 0% introductory period is usually offered for a period of up to 18 months. Furthermore, getting a personal loan with a fixed rate can also consolidate your debts. The interest rates will be lower, so you will also save some cash.
3. Choose an Affordable Payment Strategy
Those who want to eliminate their debt may need to select a payment strategy. It is a repayment method that will be beneficial for consumers with high credit card debt. One of the strategies is to pay more than the monthly minimum payment.
This tactic is aimed at reducing existing debt. The next option is the debt snowball strategy. It means that you concentrate on repaying the smallest debt first and then move to the higher-interest debt.
The largest debt is tackled in the end, so it’s similar to rolling down a snowball. One more option is the debt avalanche method. It means you begin with the credit card with the highest interest first. Then you repay smaller debts until you become debt-free.
4. Negotiate the Terms with Lenders
Is there another way to solve this situation with your debts? You may reach out to your lenders and negotiate the repayment terms with them. We are all humans so just be honest to explain your situation and ask about new conditions.
The lending partners may offer you a hardship program. If you have a steady source of income and a decent credit rating, this hardship program will help you manage payments and lower credit card debt.
The Bottom Line
The reasons for rising credit card debt among American consumers are inflation and economic instability. While you can’t predict inflation rates in the coming months, you can take control of your finances, make a budget, and use these tips to reduce existing credit card debt.