Market Overview

Credit Card Debt Is A Growing Problem In The US

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Americans continue to add to their debt by adding to balances on their credit cards.

The consumer debt was $11.52 trillion by the end of 2013 with debt levels rising by $241 billion in the three months ending in February, 2014 – the largest increase (quarter to quarter) since 2007, according to the estimates provided by the Federal Reserve Bank of New York.

But the number of Americans who can pay off their credit card debt balances continues to decline. A Bankrate survey revealed that only 51 percent Americans keep enough funds in emergency accounts to pay off their credit card debt. This is the lowest percentage since Bankrate began tracking numbers back in 2011.

The survey also says that 17 percent Americans said they do not have credit card debt or emergency savings, while 30 percent reported having less emergency savings and more credit card debt.

Problem at the individual level

The figures come as the personal savings rate in the country also continues to fall. The U.S. Department of Commerce reported that the U.S. personal savings rate fell to 4.2 percent in November 2013, which is close to the low park of near 3 percent at the end of 2007.

On an individual level, many Americans are facing a precarious financial position. Credit card debt totals to 962 billion dollars; the average debt per credit card is 14,750 dollars. Credit card penalty fees add up further 20.5 billion dollars annually, according to USDTA.

It’s disheartening to see Americans haven’t improved at keeping track of their personal finances since the recession of 2008. If consumers don’t find steady ground, it could put them at greater risks if the economy doesn’t improve at a faster rate.

Majority of the Americans continue to face a poor savings-to-debt ratio, and they aren’t making substantial progress on emergency funds, as well.

It’s not all gloom in doom

The good news may be that many Americans are aware of their financial situation. In fact, many are facing a credit situation that could do with a little love. Individuals facing credit card debt can improve their financial situation by taking the following measures:

Developing a credit repair plan

Even individuals in deep can climb out of debt with a plan and commitment. According to creditrepair.com, every individual faces a different credit situation, so a customized plan that aligns with the credit goals of a particular individual is necessary for success. A customized plan will also make it possible for that individual to see progress each month.

Such repair plans normally include prioritizing payments by interest rates (paying the balances with the high-interest rate first), asking creditors to reduce interests rates and limiting spending to free up cash.

Tracking credit activity and balances

Contrary to the conventional thinking, it is possible to use credit cards regularly whilst staying out of debt. How? By charging what is affordable to pay when the bill lands on the desk. Credit cards should not be used as a revolving debt instrument, rather a payment tool.

To make this solution work, it is important to keep track of cash flow and charges. Credit activity should be recorded and balances should be updated frequently.

Seeking help

While credit card companies are not obligated to accept less than the minimum amount request, it is ok to work with them to revise payment agreements.

If it doesn’t work out, work with a credit repair company to come up with a repayment plan. Some companies are also willing to talk directly with credit card companies to work out minimum requested payments. 

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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