Consumer Alert: As credit card debt skyrockets, here’s how to get your debt under control
Last week’s report from the New York Federal Reserve, which revealed that credit card debt has reached an all-time high, came as no surprise to most consumers. Inflation has plunged many consumers into debt. The average credit card balance is more than $6,200.
The biggest problems are young adults between 18 and 39 who rent. Here in Rochester, rent is up 10.5 percent year-over-year. Combine that with inflation and a short credit history, and these people are the most likely to default. And with credit card interest rates now over 20 percent, this debt is dangerous.
How dangerous? In an earlier report, Jarrett Felton, financial expert at News10NBC and CEO of Invessent Wealth Management, explained the Rule of 72.
“Take the interest rate you’re getting on your money,” Felton said. “Divide it by 72. That’s the number of years it will take for your money to double or your credit card balance to double if you don’t pay it off on time.”
Let me explain with an example. Let’s call her Betty. Let’s say Betty has $5,000 in credit card debt. To find out how fast her debt will double, use the Rule of 72 to divide 72 by the interest rate. Betty’s interest rate is 20 percent. 72 divided by 20 is 3.6. That means if Betty pays the minimum amount, her $5,000 in credit card debt will double to $10,000 in about three and a half years. That’s scary, right?
A study by Bankrate found that half of all credit card holders carry a balance each month. But Bankrate analysts say we don’t have to let debt shackle us. There’s a way out.
“My top tip is to apply for a zero percent balance transfer credit card,” said Ted Rossman, senior industry analyst at Bankrate. “This involves transferring your existing, expensive debt from one or more cards to a newly opened card with a generous zero percent offer.”
Click here to see Bankrate’s recommendations for zero-interest balance transfer credit cards: https://www.bankrate.com/credit-cards/zero-interest/best-zero-interest-cards/. But not everyone qualifies for one of these cards. Rossman says there’s still hope.
“As a hedge — let’s say you have low credit or a lot of debt, more than $5,000 or $6,000, you might be better off with a nonprofit credit counseling service. Firms like Money Manager International and GreenPath can often negotiate an interest rate of about 7 or 8 percent over four or five years,” Rossman said.
The National Federation for Credit Counseling can also refer you to other nonprofit organizations that can help you.
While you can try to negotiate a lower interest rate on your own, nonprofit credit counselors are often more effective because they already have relationships with credit card issuers. Rossman says you should definitely avoid for-profit debt relief services. Often, they’ll ask for an upfront payment and then tell you to stop paying your bill. Then they’ll try to negotiate a reduced payment. But in doing so, they’ll ruin your credit score.
