Even before Christmas, Americans went on a spending spree, adding a record $21.9 billion in credit card debt in just three months from July through September.
Then we each charged $1,000 more in holiday spending, according to consumer financial-education website Magnify Money, and are starting 2017 with more debt than some can ever pay.
During the national recession, people cut spending, started saving and paid down their credit cards.
Now they are charging again. According to financial-trend and product-review website Value Penguin:
▪ The average U.S. household has $5,700 in credit card debt. That average includes people who have no credit card debt or no credit card.
▪ For those households that don’t pay their balance each month, the average credit card debt is $16,048, a 10 percent increase in three years.
▪ Making the minimum payment of 1.5 percent of the balance, it will take almost 14 years to pay off that balance at a cost of $40,200 — if nothing else is charged to the card.
▪ Men on average have more credit card debt ($7,407) than women ($5,245).
Ask for help
“A lot of people struggle,” said Debbie Pidek, executive vice president of communications at Gulf Coast Community Federal Credit Union.
Some of those people come into one of the local banks or credit counselors for help.
One of the first things an adviser does at GCCFCU is pull the person’s or couple’s credit report and review it with them, she said.
Many people don’t know about financial matters.
“I don’t understand why it’s not taught in the schools,” Pidek said.
The credit union works with its members, she said, explaining what hurts and helps a credit score.
Members learn how their score affects a home or car loan, how much they pay for insurance and even whether they get a job, because many companies check a person’s credit report before hiring. Pidek said they learn about capacity and that if a credit card has a $10,000 credit line and is charged to the max, their credit score goes down even if they make payments on time.
For those who qualify, a debt-consolidation loan can pay off credit cards and help a person’s credit score. But Pidek said it comes with the expectation the borrower will pay the loan and stop accumulating credit card debt. Members sign a letter of understanding that enforces in their mind that they will not go into the same cycle again, she said. In some cases, she said, members also destroy their cards.
Debt on the Coast
Credit-reporting agency Experian’s 2016 State of Credit report breaks down the average credit card debt for seven cities in South Mississippi and shows most are at or above the national average of $5,700. Ocean Springs tops the list at $6,491 average debt. That is followed by Biloxi ($5,811), Pascagoula ($5,665), Gulfport ($5,647), Moss Point ($4,927), Lucedale ($4,782) and Picayune ($4,553).
Pidek said GCCFCU works with the nonprofit GreenPath, which has provided credit counseling, debt management and financial education since 1961. It helps more than 200,000 people a year manage their debt.
It’s sometimes easier for people to click “Take the first step” on GreenPath’s website or call 1-800-550-1961 than go to a bank and ask for help.
“In just an hour, we can have a plan,” said Katie Bossler, a financial-wellness expert working for GreenPath in Detroit since 2004. “There’s absolutely no fee to talk to us.”
In that hour, the counselor will ask questions about the financial concerns the caller is facing, she said, and educate them on how to prevent problems in the future. Financial illiteracy is one of the basic reasons people get into trouble by not having a budget and balancing that budget, she said.
She’s had people cry during the process. They may have gotten got laid off and are going through a hard time, she said, and that is worsened by calls from collection agencies.
How it works
Callers should have their bill statements and income statements ready when they call.
“We’re going to be building a budget with them.” Bossler said. “Not cookie cutter, one size fits all,” she said, but a customized plan an expert will develop with the client to fit their circumstances.
In some cases, that is a debt-management program in which a client no longer pays credit card companies directly but sends one check to GreenPath to distribute the payments.
For clients who are paying interest rates of 18 to 21 percent or higher, “We can usually get it down into single digits,” she said.
GreenPath is affiliated with the National Foundation for Credit Counseling and works with the banks on the clients’ behalf and the savings of time and money can be substantial.
The GreenPath debt calculator shows a resident of Ocean Springs with an average credit card debt of $6,491 might save $2,800 with a GreenPath debt-management program. They could pay off their debt in fewer than five years rather than the nine years it would take on their own, the calculator estimates.
“Your dollar does not stretch as far as it did even a couple of years ago,” Bossler said.
The prices of housing, food and medicine are going up while paychecks are staying the same or in some cases going down. Medical expenses that previously were covered by insurance now are adding to debt as people use their credit cards for the co-pays and high deductibles.
That’s catching people off guard, Bossler said, because it’s not something they can budget for as they would an electric bill.
GreenPath advises clients to remove the temptation of impulse buying online by unsubscribing from those email messages from retailers sending “deals” and tempting you to buy.
Bossler said the advisers at GreenPath help clients develop new financial habits.
“What we talk about is the appropriate use of credit,” she said.
Instead of having a number of credit cards with high balances, they might recommend having just one credit card and managing it responsibly.
They discuss savings, budgeting, paycheck planning and tracking expenses with a spending journal.
“Let’s get some accounting going,” Bossler said.
Tips for paying off credit cards
1. Stop using your credit cards. Buy things with cash until your debt is under control.
2. Take advantage of a zero-percent interest offer and transfer your credit card balance. Your payments will go toward paying down the principal, not the interest.
3. Negotiate. If you can’t qualify for a zero-percent offer, call your card issuers and ask for a lower rate. Let them know your payments are unaffordable, but you’re committed to paying what you owe. The worst they can say is no and you may be surprised at how willing they are to work with you.
4. Pay down your balance aggressively. After your interest-rate situation is under control, take advantage. Pay down as much as possible — even a small increase in payment could add up.
The Motley Fool