How to get credit card debt under control

Richard Barrington
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Richard Barrington
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Have you reached the breaking point with credit card debt?

National statistics show that credit card debt has been rising steadily for years. The question is, how much credit card debt is too much? In other words, when does the warning light change from yellow to red?

Based on one important metric, credit card debt may have reached that threshold. Besides what the national figures say, the question you have to ask yourself is whether your credit card debt has reached the point of no return. That’s the point where you fall behind on your payments, the cost of your debt skyrockets and you ruin your credit for years to come.

Before you join the millions of Americans who have reached that point, there are steps you can take to pull back from the brink. These steps will help you get credit card debt under control so you can once again use credit successfully.

Credit card distress is the worst in over a dozen years

In the second quarter of last year, the total credit card debt owed by Americans crossed the $1 trillion mark for the first time, and since then it has kept on growing.

That’s the total for all consumers. How much credit card debt does the average American have?

Among consumers who owe a balance, the average credit card debt in America is now $6,201. That’s up by 7% over the past year, and by 18% since mid-2020. Interest rates on credit cards are 6.85% higher than they were in mid-2020, making that extra debt all the more expensive to carry.

Those figures give you some idea of the size of the credit card burden consumers are carrying. The question remains: how much credit card debt is too much? Is over $1 trillion in credit card debt too much for Americans to handle?

The growing amount of overdue payments suggests that it is. Credit card balances are becoming seriously delinquent (90 days or more overdue) at a faster rate than at any time in over a dozen years.

To put that time frame in perspective, the last time credit card balances were becoming seriously delinquent this fast, America was still recovering from the mortgage crisis and the Great Recession. The unemployment rate was 9.1%, compared with today’s 3.9%.

This raises a chilling question: If people are falling seriously behind on their credit card payments in today’s relatively strong economy, what would happen if the country went into a recession?

Young adults in particular are setting a trap for themselves

The problem of overdue credit card payments is especially acute among young adults. Over the past year, 9.90% of credit card accounts owned by 18 to 29-year-olds have become seriously overdue.

That’s the highest rate of any age group. It’s also the highest rate for that age group since the third quarter of 2010.

This is very damaging to people who are just establishing a credit history. Not only are they putting themselves under a mountain of debt, but late payments are doing damage to their credit scores that will likely take years to overcome.

The combination of these factors may well delay the ability of this generation of young adults to pursue positive financial goals, such as buying a house, saving for their children’s education and putting money aside for retirement.

Steps to take if you can’t make a payment

If you have overdue credit card payments, or feel you are getting to the point where you might miss a payment, don’t just let it happen and wait for the credit card company to come after you. Here are some steps you should take:

  • Contact the credit card company. Your instinct may be to try to hide, but they’ll find you. Also, they’ll report late payments to the credit bureaus.
  • Have a plan. When you contact the credit card company, it helps if you have a plan for how you can eventually repay them. If the interruption in payments is due to temporary circumstances, let them know when you can resume payments. If you can’t make the full payment, let them know how much you can pay.
  • Actively look for solutions. Whether it’s working more hours, getting another job or tightening your household budget, you need to get your lifestyle within your means. Your near-term goal should be to create room in your budget to pay your credit card bills. Your long-term goal should be to find a lifestyle that doesn’t depend on continued borrowing.

Credit card companies aren’t simply going to let you off the hook for what you owe, but as long as you communicate with them openly they can be surprisingly flexible about how you pay them. If you show a good-faith intention to pay them back eventually, they might make concessions about the timing and size of payments, or grant temporary late fee waivers.

How to get out of credit card debt more quickly

Once you get back to making credit card payments, try to gain momentum in the pace of your debt reduction. Here are a few ways to do that:

  • The best way to pay off credit card debt is to make more than the minimum required payment whenever possible. Minimum payments are kept low to stretch out repayment over a longer time so that you pay more interest. By paying more than the minimum, you can beat the credit card companies at that game.
  • If you are making payments on multiple credit cards, direct any extra payments to the one with the highest interest rate. That’s the debt that’s costing you the most, so eliminating it will have the greatest impact on your finances.
  • Look for opportunities to refinance credit card debt. If you can use a lower-interest personal loan or balance transfer card to pay off high-interest credit card debt, it should allow you to pay off your debt more quickly. Just be sure to do this in connection with a disciplined debt-reduction plan, so you don’t simply build your credit card balance back up.

Statistics show that a growing number of Americans are struggling to keep up with their credit card payments. If you’re having this problem, work with your credit card companies to buy some time. Then use that time to get yourself on track to pay off your credit card debt once and for all.

Richard Barrington
Cardratings Contributor

Richard has over 30 years of experience in financial services, including 23 years with the investment management firm Manning & Napier Advisors, Inc., where he led the Marketing Group and served on the firm’s Investment Policy Group and Executive Group. Over the years, Barrington has...Read more

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