Products You May Like
Covid-19 has triggered unprecedented financial challenges for many individuals and families.
Now, one survey shows just where many of them are feeling the pinch — their credit card balances.
Bankrate.com finds that 42% of U.S. adults with credit card debt have increased those balances since the Covid-19 pandemic began in March 2020. The company’s online survey was conducted in early September and included 2,400 adults, 1,297 of whom had credit card debt.
Of those whose debts increased, 47% said it was directly caused by the pandemic.
“It does go to show how widespread and persistent of a problem credit card debt can be,” said Ted Rossman, senior industry analyst at Bankrate.com.
Admittedly, while many Americans have seen their credit card balances balloon, others have been able to whittle down those debts since the onset of Covid-19.
Overall, credit card balances are down significantly, according to the latest Federal Reserve data.
Bankrate.com’s survey results highlight how those financial improvements have not been shared by households equally, Rossman said.
Moreover, once you’re in credit card debt, it can be hard to get out. The reason: the average annual percentage rate is more than 16%.
The survey found 54% of adults carry credit card balances from month to month, and 50% of those people have been in credit card debt for at least a year.
“It does tend to be a long-term systemic kind of thing,” Rossman said.
The average person with credit card debt owes $5,525. By making only the minimum payments, they’ll be in debt for about 16 years and pay more than $6,000 in interest, Rossman said.
The good news is that as the economic recovery moves forward, credit card companies are once again starting to offer 0% balance transfer deals that had dried up earlier in the pandemic, he said.
Those offers can let borrowers pause their interest for up to 20 months while they attack those debts.
Typically, you need a credit score of at least 700 to qualify for one of those deals. In addition, you need to make monthly payments on time in order to hang on to that 0% rate.
More from Personal Finance:
Make these financial and career moves before you quit your job
If you’re looking for a hotel deal, it may pay to wait
How to know when to get back in the market after the latest dip
Alternatively, nonprofit credit counseling can help borrowers consolidate their balances, negotiate lower interest rates and come up with a plan to get debt-free.
Borrowers may also consider going it alone by consolidating their debts with a personal loan, increasing their income or reducing their expenses so that they have more money to sock away toward their balances, Rossman said.
If you find yourself overwhelmed by your monthly credit card statement, Rossman said taking these additional steps can help:
- Figure out where you stand by actually writing it out. What is the total you owe? What is the interest rate on that debt?
- Identify ways of reducing your debts that work for you. Your choices may include the avalanche method, whereby you prioritize debts with the highest interest rates first, or the snowball method, where you eliminate the smallest balances first.
- Don’t be afraid to ask for help. Find someone you trust, such as a spouse, friend, family member or professional financial counselor, who can help talk you through the problem and potential solutions.
- Avoid chasing rewards if you’re paying high interest rates. If you already have a high balance on your credit card, it doesn’t make sense to continue spending on that card to get points or other offers. Instead, use cash or a debit card for daily spending while you’re working to knock your debts down, Rossman said.