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Credit Card Debt Rising for Americans
FOX 26 Consumer Reporter Heather Sullivan has some smart sense on why credit card debt is on the increase.
Houston - The high cost of living has led consumers to rack up credit card debt, compounded by record interest rates now averaging 24%. And data shows young adults are struggling the most.
Federal Reserve data shows credit card debt fell from $858 billion in 2020 to $736 billion in 2021, but has rebounded to $993 billion this year.
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"My wife and I, when we were younger before we had kids, we were living like 20-somethings, going out to eat a lot, buying things we didn’t need," said Derek Vaughn.
Derek Vaughn says they were struggling to keep up and $60,000 in debt.
"I 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," said Vaughn.
Credit counselors at Money Management International helped him pay it off in four years.
"They negotiate with the creditor on your behalf. The interest rates on everything get lowered significantly," explained Vaughn.
Federal Reserve data shows that credit card debt has soared over the last two years, especially among young adults. And while delinquencies are at 2.43% for all cardholders, they've risen to 8.3% for adults under age 30.
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"That’s concerning, especially when you think about the student loans that are going to be going back into repayment in October," said Thomas Nitzsche with Money Management International.
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 those monthly payments into one and work with your existing creditors to reduce interest rates down to an average of about 7%. And we can have you on a plan to be debt free in about 60 months, our average is 48 months," said Nitzsche.
Other options include transferring debt to a 0% APR balance transfer card if you can pay it off before the interest rates rises at the end of the term. You can also ask lenders to reduce you interest rate. LendingTree says 76% of requests are successful. People with good credit scores can seek personal or consolidation loans at lower rates. And if you're falling behind on payments, you can try to negotiate a settlement with the lender, which is often lowered to 50%, if you can pay the lump sum.
"Don’t just pay the minimum payments. You're not going to get anywhere that way. It’s going to come back to get you. You’re going to feel like you’re drowning," said Vaughn.
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The National Foundation for Credit Counseling can help borrowers find non-profit credit counseling agencies.
Nerdwallet offers an overview of the pros and cons of different debt relief options.
Debt management experts recommend paying any extra money you can toward paying down a credit card. Some consumers prefer the "snowball method" of paying off the smallest debt first to feel a sense of progress. Others prefer the "avalanche method" of paying off the card with the highest interest rate first, which can result in paying off debts faster and for less money.