Stretching Your Dollar: How to Manage Mounting Credit Card Debt

<div class="block">Ted Rossman, senior industry analyst at Bankrate, joined Cheddar News&#39; &#39;Stretching Your Dollar&#39; show to talk about the mounting debt among Americans. Credit card debt hit a record high at over a trillion dollars and according to Rossman, emergency expenses are one of the biggest culprits in debt accumulation. </div>

Stretching Your Dollar

Well, we start today with one of my favorite things and that's hearing from you. So yesterday, we talked about how credit card debt in the US hit a record high of over a trillion dollars. So we wanted to speak directly with you to find out how you are feeling. And we went on social media and we asked, are you having a hard time managing your credit card debt? Well, out of more than 3000 votes on linkedin, 29% said yes, quite astonishingly, an amazing 71% said no. So might differ based on the platform, but we did get a bunch of responses. So we wanted to highlight that and it's great to hear that the majority of our viewers on linkedin are managing their debt, but we do have some tips on how to help you for those who are struggling. We are here to help as rates do remain high inflation. Yes, might be cooling off, but a lot of us are still feeling the squeeze from higher prices. And as a result, credit card debt is skyrocketing as we've been discussing. So the Federal Reserve reported today that credit card debt just topped a trillion dollars for the first time ever that was yesterday. And according to a report from bank rate, more Americans are holding on to credit card debt than ever before. 47% of card holders carrying a balance. In fact, from month to month of those carrying a balance, 60% about 54 million have been in debt for at least a year. Well, if the interest rate is still high, it's more important than ever to get on top of our debt. And so to help us get started, I'm joined by the author of that report, Ted Rossman, senior industry analyst at bank rate. Ted, what is driving people into debt these days? It's primarily very practical stuff. The top answer is emergency expenses, some sort of unexpected medical bill, home repair, car repair, something like that. That's number one, number two is just day to day expenses. And I feel like that's been especially relevant for a lot of people these past couple of years with high inflation and high interest rates. That's good to know. Right. So I think a lot of us have been caught off guard certainly with emergencies before and had to turn to a credit card for that. But why is it not a good idea to hold on to debt from month to month to carry that debt over versus paying it off. The average credit card charges about 20 a half percent. This is so much higher than other forms of debt, you know, probably 345, maybe six times higher than your typical mortgage or student loan or car loan or, or something like that. The minimum payment math on credit cards is just brutal if you have the average balance, which is about $5700 according to the Trans Union. If you only make minimum payments at 20 a half percent, you're going to be in debt for more than 17 years and you'll end up paying about $8400 just in interest. So we want to really work on both sides of this. Try to lower your interest rate and lower that payback period as well. Very good advice there for people who want to start paying off their credit card debt. I know you kind of got that there. But what are the steps the routine that they should follow to try to make some progress? My top tip is to get a 0% balance transfer credit card. This is going to help you with both sides of that equation. So the longest 0% terms are up to 21 months. The Wells Fargo reflect Bankamericard City Simplicity. Those are all good examples. You move your existing high cost debt over to one of these cards use that tail wind to your advantage, no interest for almost two years. Try to pay it all off within that period. If you can some other alternatives might include a low rate personal loan. If you have good credit, that rate might go as low as about seven or 8% over five years, you can pay off the credit cards and then repay the personal loan more favorable terms. And then also nonprofit credit counseling, reputable agencies like Money Management International can probably negotiate something like a seven or 8% rate over four or five years. You don't even need great credit for that. So what should people look out for when they apply for one of these balance transfer cards? The marketing incentive here is that the company brings you in with this loss leader, the 0% rate for a period of time. And then at the end of the term, the rate skyrockets, that's the thing you need to be aware of. I've heard that about half of these balances are paid in full by the time the clock runs out definitely strive to be among that half. I would say, don't add any new purchases either. That's another thing. They may tempt you with a 0% rate on new purchases, but it's hard to hit a moving target. So I would say just divide what you owe by the number of months in your 0% term. Try to stick to that level payment plan. I think that will give you the best odds of success. So in terms of prioritizing a high interest debt, first head how should people factor that into the equation? Credit cards should be at the top of the list because other than something like a payday loan, credit cards are probably your highest cost debt by a wide margin. Sometimes people talk about the snowball debt payoff method where you start with the smallest amounts and then you build momentum like a snowball, rolling downhill or the avalanche method where you start with the highest interest rates and then you work your way down, that'll save you the most money mathematically. But that's why I really like these consolidation approaches like a 0% balance transfer card or a low rate personal loan because even a quote unquote low credit card rate these days is not that low. I mean, even a credit union that might have had a six or 7% rate two years ago, it's probably 12 or 13% now. So other than a 0% promotion, credit card rates are almost all in the double digits. Sometimes even 20 to 30%. All right. Bank rate analyst, Ted Rossman. Ted, thanks so much for your expertise.