Consumer credit card debt has been rising steadily in the last few years, and now, it’s hit a record high since the financial system almost croaked in 2008. It seems undeniable that the use of plastic has been assimilated into our society and made it even harder to pay off debt. This signals bad news for those who are working to pay off their credit cards.
According to a recent Federal Reserve report, outstanding credit card loans surpassed $1.02 trillion in June. This is the highest that figure has been since 2008 when home prices dropped and spurred on a nation meltdown.
Over the next two years, banks wrote off more than $100 billion in credit card loans, and the unemployment rate spiked by 10 percent. Given such hard economic conditions, it’s not that great a wonder that Americans turned to credit cards to cover basic costs of living.
But now we don’t have the financial crisis to spur on our credit card debt. It’s making investors nervous that we may be on the brink of another financial crisis.
Consumer Habits Main Contributor
Although minor economic factors could be contributing to rising credit card debt, experts say consumer habits are the primary concern. “America’s credit card balances have never been higher, but there’s no reason to think they won’t just keep climbing,” Matt Schulz, CreditCards.com’s senior industry analyst told CNBC. “Combine that with steadily rising interest rates and you have a potentially volatile mix.”
It goes to show that it’s really the consumer factor that is so drastically influencing credit card debt. With credit card applications everywhere promising discounts and special promotions, it’s too easy to put your money on a plastic card and pay it off later.
This can be habit forming, and it creates a real strain for the average consumer.
Pay Down Your Debt
So credit card debt rate is rising steadily, and we won’t get any rest from it unless consumers take to heart some serious debt elimination strategies.
“We simply can’t keep taking on credit card debt forever without it causing major problems,” said Schulz. “This record probably won’t be a major tipping point, but it likely isn’t too far off. Even if you feel your debt is manageable right now, know that you could be one unexpected emergency away from real trouble. Get that debt paid down while things are good so you can be better prepared if things turn for the worse.”
Here are some of the best strategies for minimizing credit card debt right away.
- Take out a personal loan. This kind of loan often enjoys lower interest rates than credit cards, especially if you choose one with rates that go down over time. It can be a good way to get your finances under control.
- Stop spending. Obviously, you can’t work on whittling down debt if you keep building more. Cut up your credit cards or have a family member hide them for you. Any time you get a credit card application in the mail, throw it out.
- Snowball your debt. In other words, pay off your debts from smallest to largest. Pay all your minimum payments, but put all your extra funds toward your smallest debt. Do the same for the next smallest debt until every balance is paid in full.
- Try the debt avalanche method instead. If it makes more sense to you, pay your debts largest to smallest. You’ll likely owe less in interest if you do it this way, but you won’t cut down the number of accounts you have as quickly. This could make you lose motivation.
- Take in some extra income. You might not be able to stretch your income now, but if you took on a part-time job at a coffee shop, marketed your freelance services, donated plasma, or sold some of your excess, you’d have more to pay off your credit card debt.
- Consolidate debts if possible. Some credit cards won’t allow consolidation, but if they do, it’s a great way to keep a closer eye on your balances and keep up with your payments. It’s confusing to work with multiple accounts, and it’s not as easy to see how much debt you build up. In addition, you might have a better interest rate with the balance transfer. Even if there’s a transfer fee, the benefits cost you less.
- Learn to budget. If you knew how to make and keep a budget, you would be less likely to get into further credit card debt. Take online courses and invest in budgeting software that’s easy to use and follow.
Consumer credit card debt will continue to rise unless we take action now to stop it. Individuals must recognize the danger that credit card debt poses to them and take action to address it.