Your trusted source for the latest news and insights on Markets, Economy, Companies, Money, and Personal Finance.
Popular

Credit Card Debt Reaches Record High

Americans’ credit card balances reached a new high in the second quarter, surpassing $1 trillion, according to the Federal Reserve Bank of New York. Credit cards are now the most common form of household debt and have seen the largest increase compared to other types of debt. More than two-thirds of Americans had a credit card in the second quarter, up from 59% a decade ago. Card balances were also 16% higher in the second quarter of this year compared to the same period last year.

Experts have expressed concerns about the increasing reliance on credit cards, particularly among younger adults who are facing tighter budgets. With rising prices, consumers are using credit cards to cover expenses. Despite the rising debt levels, there is currently little evidence of widespread financial distress among consumers, according to the New York Fed. Card delinquencies, which were unusually low during the pandemic, have returned to pre-pandemic levels.

However, rising credit card balances could pose challenges for some borrowers, especially those who are scheduled to begin repaying student loans in October after a three-year break. Credit counselors have noticed worrisome trends and have seen higher reported balances. Inquiries from people citing student loans as a reason for seeking credit counseling rose by 50% in July compared to June. A recent survey found that a third of households with student debt are expecting monthly loan payments of at least $1,000. Many are preparing for significant lifestyle and budget changes when repayment begins, including taking on more credit card debt.

Carrying high credit card balances can be costly, especially for those who only make the minimum monthly payment. The average interest rate for cards with balances was about 22% in May, and the average card debt per borrower was almost $6,000. Making only the minimum payment would take about 18 years to pay off the debt and result in nearly $9,500 in interest payments. Financial experts recommend strategies for paying down credit card debt, such as prioritizing cards with the highest interest rates or focusing on cards with the lowest balances to build momentum.

For those concerned about a debt crunch, borrowers with federal student loans can explore income-driven repayment plans that lower monthly payments to a more manageable amount. Reviewing spending habits and debts is also important to develop a plan. Experts suggest compiling a list of credit cards, noting their balances and interest rates. It is also beneficial to leave paid-off credit card accounts open with minimal usage as this can have a positive impact on credit scores.

Here are some questions and answers about credit card debt:

Balance-transfer offers at zero percent interest are still available for those with good credit scores, typically 670 or higher. Before transferring a balance to a new card, it is important to ensure that the balance can be paid off within the promotional period, usually 15 to 18 months. It is also common to pay a fee of 3 to 5 percent of the transferred balance.

Some borrowers opt for personal loans to consolidate high-interest credit card debt. While this can provide short-term benefits, it may not be a long-term solution unless card spending is reduced after consolidation. Research has shown that card balances tend to increase close to previous levels within 18 months of consolidating with a personal loan.

In general, it is not recommended to use credit cards to repay student loans. Card issuers charge fees, and credit cards usually have higher interest rates compared to student loans. Neither the federal government nor private student loan lenders allow direct repayment through credit cards.

Share this article
Shareable URL
Prev Post

Should Tourists Visit Areas Affected by Maui Wildfires?

Next Post

How to Spot and Avoid Scams Posed as Maui Charities

Leave a Reply

Your email address will not be published. Required fields are marked *

Read next
“I at all times knew that I used to be going to do one thing totally different from the 9 to five,” Robert Kwok…
The capricious churn of internet-charged tradition is producing extra fundamental characters, apocrypha and…
The Federal Commerce Fee stated its first “undercover telephone sweep” of funeral properties throughout the…