Many Americans struggle with credit card debt, and as a result of the current economic difficulties, their problems are getting worse. For instance, a recent study by the New York Fed found that 15.3% of Gen Z credit card users, or one in seven, had maxed out their credit cards. But Gen Z isn’t the only generation facing hardship.
In Q1 2024, nearly 9% of credit card obligations were deemed delinquent, and nearly one in five credit card users overall are maxed out.
These credit card data show the serious financial difficulties that a lot of people are dealing with in a world where prices are rising, with continuously high inflation being one of them.
Even while inflation has decreased from the above 9% levels that were experienced in the middle of 2022, the current 3.4% inflation rate is still excessive, and costs for necessities like food, rent, and gas continue to be high.
The high interest rates implemented to fight inflation further exacerbate the problem by making it more expensive to hold a credit card balance month to month.
As these regular costs rise, an increasing number of people are compelled to use credit in order to make ends meet, unintentionally spiraling deeper and deeper into debt. Furthermore, a lot of maxed-out borrowers are currently searching for ways to get out from under the weight of crippling credit card debt due to the severity of the issue.
5 options to think about for debt relief
Loans for debt consolidation
Getting a debt consolidation loan from a bank, credit union, or online lender is one strategy that can be worthwhile to take into consideration. By using this approach, you settle all of your outstanding credit card debts with the debt consolidation loan.
By doing this, you can pay off your credit cards and your new loan at one fixed monthly payment, which will ideally have a lower interest rate than your previous credit cards.
Over the course of the repayment term, your total interest expenses are decreased by combining several credit card balances into one loan. As a result, the loan is less expensive and easier to pay off each month. It may also be simpler to budget for debt payments when there is just one.
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Programs for consolidating debt
Similar to a debt consolidation loan, a debt relief program involves working with a company to secure a debt consolidation loan rather than going via a typical financial institution.
In order to combine all of your credit card debt into one easy-to-pay payment, these programs usually need you to borrow money from the lending partner of the debt relief organization.
You will usually receive a lower interest rate on a debt consolidation loan if you take out one through a debt consolidation program than on your credit cards.
Consequently, during the payback term, the total interest expenses are decreased. This facilitates the gradual repayment of your loan at a lower cost.
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Plans for managing debt
The professionals you deal with when you sign up for a debt management plan with a debt relief company bargain with your creditors to get concessions like lowered interest rates, waived fees, and consolidated payment plans.
After that, you send the agency a single payment every month, and it splits it up among your creditors.
This results in a closed-end, structured payback plan that is tailored to your financial circumstances. It also often allows you to pay off your entire debt in three to five years (on average).
Settlement of Debts
The aim of debt settlement programs, which are generally provided by debt relief organizations, is to settle your debt for less than the entire amount owing. In most cases, when you sign up for a debt settlement or debt forgiveness program, you cease paying your creditors and instead make monthly payments to the debt relief organization.
But, given the late payments will lower your credit score and the debts will appear on your credit report as paid for less than owed, it can also have a very bad effect on your credit both during and after the settlement process.
However, this choice offers a quicker route out of debt for people who are unable to make their minimal payments.
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Credit cards with balance transfers
A new balance transfer credit card, which lets you move existing high-interest accounts to a new card with an introductory 0% APR term, can be available to you if your credit is decent.
You’ll have time to pay it all off during the interest-free (or low interest) window if you’re consistent about your payments. This interest-free window gives you breathing room to work down principal before regular interest rates start.
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