Let's talk credit card debt. If you're falling behind on your credit card bills, you're not alone.
We posted on social media asking what questions you have about credit card debt.
We took your questions to financial advisor Al Riddick to get you some answers.
“The first step that I would ask people to ask themselves is a question: What led me to get into all of this credit card debt in the first place?"
Riddick says you should ask yourself the following questions:
- Are you spending beyond your means?
- Are you in denial of your current financial state?
When you are trying to get out of credit card debt, he said you need to have a very good handle on your cash flow.
“How much money is coming in, and where is that money going?" he said.
He suggests going through your credit card statement line by line to see exactly how you're spending money. He said the best way to avoid additional fees is to make your payments on time.
“This not only applies to credit card debt, but debt in general,” he said.
“Know when your debt is due. I'm a big fan of automatic payment on my bills."
Q & A
We took comments from our Facebook post and brought them to Riddick. He shares his thoughts and advice below.
Facebook Comment:
“I think the average young person could benefit from knowing how their credit will affect future large purchases like a vehicle as well as getting housing.”
Riddick:
"Credit, in my opinion, is nothing more than the ability to obtain and consume a product or service today and pay for it at a later time. Credit scores impact the rate of interest you will be charged to borrow money. For example, if your credit score is high, you typically will have a low interest rate. On the other hand, if your credit score is low, the interest rate a person pays will be higher because the lender views that individual as a greater risk. Lenders want to be rewarded for taking more risk. Credit scores impact your ability to finance a vehicle or get a house because the interest rate you pay will increase the total cost of borrowing. Cash on hand also impacts this financing decision because the more money you have as a down payment, the lower the amount you have to borrow."
Facebook Comment:
“I think a lot of people could benefit from more information about debt consolidation into a personal loan through your bank. The interest savings can literally make all the difference.”
Riddick:
“Credit unions may have better rates than commercial banks so shop around. A debt consolidation loan usually has a lower interest rate which allows the borrower to save money. For example, if you have unpaid balances on three credit cards that have interest rates in the double digits and you’re able to borrow money at a 7% APR (annual percentage rate), your total saved on interest payments will be lower. In addition, you may experience a lower level of stress by having to make one payment instead of three.
Some people who do a balance transfer to a new credit card so they can take advantage of a 0% introductory offer can sometimes discover that this does not solve their problem. It usually provides a false sense of progress when spending behaviors are not addressed.
Another option considered by some individuals is a home equity loan. Although the interest rate should be lower than what is being paid on credit cards, addressing the behaviors which led to overspending is necessary to ensure the situation is not repeated in the future.”
Facebook Comment:
“I think it would be interesting to see what most debt is accumulated from. I know we aren't spending on fun things. But we are so strapped we have to go to the card for things like car repairs or a new water heater. THEN learning what our alternatives even are to credit cards since most of us don't own our homes anymore bc of corporations buying up all the starter homes.”
Riddick:
“According to the latest Federal Reserve Bank of NY Household Debt and Credit Report (Q1 2024), here’s a summary of debt:
- Mortgage balances - $12.44 trillion
- Auto loans - $1.62 trillion
- Credit card balances - $1.12 trillion
- Nearly 9 percent of credit card balances and 8 percent of auto loans (annualized) transitioned into delinquency.
One of the best alternatives to a credit card is having an emergency fund. Although times are tight, is it possible to get a side hustle which could fund this account? Without this important piece of the financial puzzle in place, most people will have an incomplete picture of financial health. We live in a gig economy so maybe it’s possible to find a way to supplement your income. One of the most overlooked sources, in my opinion, for funding a starter emergency fund is an income tax refund.
It might be interesting if people posed the following question to themselves. If I could win $10,000 by finding at least one way to increase my income or trim expenses, how would I do it?”
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