Fox26 Houston: Credit card debt rising for Americans
MMI’s Thomas Nitzsche and MMI client Derek Vaughn join Heather Sullivan at FOX26 Houston to discuss paying down debt as credit card balances rise nationally, interest rates remain high, and student loans soon re-enter repayment.
Transcript:
The high cost of living has led consumers to rack up credit card debt, compounded by record interest rates averaging 24%. Data shows young adults are struggling the most. Consumer reporter Heather Sullivan joins us live with some Smart Sense on how to deal with this debt and hopefully get out of it.
Heather Sullivan: It's huge. So take a look at this graphic. This is the debt right now. The Federal Reserve data shows that credit card debt has gone from about $858 billion in 2020 to $736 billion in 2021 and then it has rebounded now to $993 billion dollars this year.
“My wife and I, when we were younger before we had kids, of course, we were, you know, living like young 20-somethings, going out to eat a lot, buying things we didn't need.” Derek Vaughn says they were struggling to keep up with $60,000 in debt. "I can remember being on the verge of tears a couple of times trying to talk to creditors and them not really wanting to do much for me." Credit counselors at Money Management International helped him pay it off in four years. “They negotiate with the creditors on your behalf and the interest rates on everything get lowered significantly.”
Credit card debt has soared the last two years, especially among young adults. While delinquencies are at two percent for all card holders, they've risen to eight percent for adults under age 30. That's a little bit concerning, especially when you think about the student loans that are going to be going back into repayment in October.
Help is available:
Federal student loan borrowers can contact their loan servicers about new repayment options. Credit counseling agencies can help consumers with budgeting and reducing debt.
“We can consolidate all those monthly payments into one and work with your existing creditors to lower the interest rates down to an average of about seven percent and have you on a plan to be debt-free within about 60 months (on average it's 48 months).”
Other options include transferring debt to a zero percent APR balance transfer card if you can pay it off by the end of the term, or asking your lenders to reduce your interest rates.
People with good credit scores can seek personal or consolidation loans at a lower rate. If you've fallen behind, you can try to negotiate a settlement, often 50% if you can pay the lump sum.
“Don't just pay the minimum monthly payments. You're not going to get anywhere that way. It's going to come back to get you and make you feel like you're drowning.” Heather has put some really helpful resources for you on Sullivan Smart Sense on fox26houston.com.
Here's an additional question: What do you think it's better to pay off first, the smallest amount of debt or the highest interest rate?
Heather Sullivan: You're talking about the snowball versus the avalanche method. Many people like the snowball method, which is paying off the smallest debt. It makes them feel like they're making progress. The avalanche method, though, is paying any extra money towards the card that has the highest interest rate. That will actually help you to pay it off faster and you'll use less money to pay it off.
