Credit Card Debt Has Reached an All-Time High in 2024
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đ Main topic: Credit card debt is on the rise in 2024
The Federal Reserve Bank of New York reported in early August 2024 that Americans owe $1.14 trillion in credit card debt. Since the second quarter, credit card balances have risen by $27 billion, which is a 5.8% increase from a year ago.
Michele Raneri, vice president and Head of U.S. research and consulting at TransUnion, says borrowers with revolving debt have maxed out their credit cards.
Why is credit card debt increasing?
It seems like most people havenât let go of revenge spending. However, according to CNET, people are spending money to cope with grief, heartbreak, stress, and other emotional battles.
According to research, the simple anticipation of using a credit card to make a purchase can activate the reward system in the brain. Not only this, consumers are constantly getting pressured by retailers to buy things they think will make them happier and overall make their lives better.
Besides emotional motivation, many consumers rely on credit cards when unexpected things arise. Twenty-two percent of Americans donât have emergency savings and use their credit cards for emergency expenses. Â
Americans are also struggling with paying off their credit cards
Spending isnât the only thing that is increasing. Credit card delinquency rates have also been on the rise. In the last year, the Federal Reserve Bank of New York found that 9.1% of card balances moved into delinquency.Â
With the average credit card interest rate of 24.92%, paying your credit card in full each month is essential to avoid debt.
If you have debt, paying it down as quickly as possible will help you live a life of financial stability. Additionally, by prioritizing debt payments, you can avoid paying more interest and other credit card fees.Â
Ready to pay off that debt for good and gain financial freedom? Weâve got some tips for you!
Tips to pay off credit card debt fast
Many of us are guilty of letting our credit cards get a bit (or a lot) out of control. However, the time of uncontrolled splurging is over, and youâre ready to pay down your debt. Hereâs how to get started.Â
1. Stop all credit card spending Â
The first and perhaps most challenging step is to stop using credit cards. You, sometimes, you just have to go cold turkey.Â
Here are some actionable steps to halt your credit card spending:
Leave your credit card at home when you go shopping.
Stick to using cash only to make purchases.
You can freeze your card by putting it in a Ziploc bag filled with water and placing it in the freezer. (Memorized the numbers? Call and ask for a new one with new numbers and then freeze it!).
Disconnect your credit card from all online stores.
Temporarily stopping your spending gives you time to catch up on your payments. Pausing your credit card usage can also help you learn how to use a credit card wisely.
2. Create a budget for your spending
Do you understand your spending? For instance, are you using your credit card for basic necessities or spontaneous trips to Target?
No matter how youâve used your card in the past, now is the time to take control of your spending by creating a monthly spending plan.
With a spending plan, you can become more aware of your spending habits and see how your planned expenses differ from your actual expenses.Â
Start by listing all your necessary expenses and allocating money to those areas. For instance, you can list expenses such as bills, debt payments, groceries, etc.Â
Next, review your credit card statement. What other expenses from your statement should you add to your monthly spending plan? Make sure to include any miscellaneous expenses.Â
Once you have a list of all your necessary expenses, focus on only purchasing what is on your list. Of course if you have extra money left over, you can allocate that money toward discretionary items such as entertainment, eating out, etc.
By following this plan, youâll avoid spending money you donât have and prevent yourself from accumulating more credit card debt.
Lastly, review your spending weekly to ensure you stay on track and adjust your plan when needed.
3. Create a financial plan
With a better handle on your spending, you can start creating a financial plan.
You might wonder if a financial plan is the same as a budget. Well, not exactly.
A financial plan is more in-depth than a budget and paying off debt. It considers your long-term goals and creates a more secure financial future.Â
That said, here are some steps to create your financial plan.
Set financial goals to act on
Write out some financial goals to start setting up your financial plan. Consider things you want to achieve in the future, such as paying off debt, saving up for a vacation, or creating a college fund.
Keep your goals to 3 to 5 main goals so you donât get overwhelmed.
Save for emergencies
Next, youâll want to include saving for an emergency fund. An emergency fund typically covers 3-6 months of living expenses. Having this money saved will help you if unexpected events happen. It will also prevent you from relying on your credit card in an emergency.
Set up retirement savings
Youâll also want to set up a retirement plan. Check with your employer to see if they provide retirement savings options, such as a 401k. If not, consider opening an individual retirement account known as an IRA.
Plan additional investing
Lastly, make a plan for investing. While investing may seem scary and overwhelming, it can help you secure your financial future. And contrary to popular belief, you donât need much money to start investing.Â
Donât forget to consider things youâll need to keep your plan intact, for instance having the right types insurance, and having a will/estate plan in place.
4. Develop a debt reduction strategy
Paying the minimum on your credit card debt will keep you in good standing, but youâll pay more in interest.
Itâs like running a race with 10-pound ankle weights. Eventually, youâll get to the finish line, but itâll take a while. With your credit card debt, youâll eventually pay it off, but it will take a lot more time to do so if you only pay the minimum.
The avalanche and the snowball method are two popular strategies to pay off debt quickly.Â
The avalanche method involves focusing on paying off the credit card with the highest interest rate. By putting extra money towards this credit card, you will pay less interest.
The snowball method involves paying off the debt with the lowest balance first. By putting your extra money on the card with the lowest balance, you can pay off your smaller debts faster.
5. Work with a credit counselor
When it comes to lowering debt, sometimes itâs best to work with a professional such as a credit counselor. These professionals can offer different services and strategies to help you lower your debt.
To find a reputable credit counselor, consider starting with universities or credit unions. The Federal Trade Commission also offers valuable guidance on selecting trustworthy counselors.
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Debt is one of those life annoyances that can be easy to ignore. Yet, without proper management, debt can become the skeleton in your closet. It can slowly damage your credit score, prevent you from making certain purchases, and cause unnecessary stress.
However, with a debt repayment plan, you can slowly start to chip away at your debt until you are debt-free.
Remember that this journey will take time, so celebrate your small wins along the way.
Of course, if you need more support, you can check out our free course on destroying your debt!
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