Credit card debt at record high

As we enter 2018, the amount of money that Americans own on their credit cards has hit a record high. The country collectively owes over 1 trillion dollars, and that amount exceeds the amount of money that was owed prior to the “Great Recession” of 2007-2009.

As we have reported on multiple times, this is bad news for both the country and especially for those households that are in debt. It is actually the worst time for people to be borrowing money on their credit cards, as the US federal Reserve has been (and is continuing to) increase short term interest rates due to the strong economy. And those increases in short term rates directly impact the borrower’s monthly payments.

Each quarter point increase in rates is passed through by banks and lenders to borrowers. As an example, say the monthly interest rate on your credit card is now 12%, which is technically low by historical standards. If the federal reserve increases the prime rate by .25%, then your new interest rate on your debt will be 10.25%.

While that may not seem like a huge increase in itself, it is estimated that there may be 3-4 increases throughout 2018. That number will add up. The increases also compound, so they build on each other.

Delinquencies are steady

While the amount of credit card debt is at record high, there is one data point that is not as alarming. The American Bankers Association reports that delinquencies (or unpaid debt) was “only” at 2.6% as of September 30, 2017. That is a lower figure, so that means that most Americans are still doing a decent job at keeping up with their monthly payments. However, do keep in mind that is an older data point, was taken before debt records hit record levels, and was prior to the latest rate increase.

Steps to address record credit card debt

Right now, with a strong job market and economy, Americans should be reducing their leverage. They should be planning for the next downturn in the economy, saving for retirement, and building cash reserves. When things are going very well, and when the economy and the price of assets may be approaching “bubble” levels, is when people should cut back. So, start now, at the beginning of a fresh calendar year of 2018.

One trillion dollars is a lot of collective debt. If you fall into that category, you may be seeking assistance. We do have some suggestions on steps to take to deleverage. They include the following.

First, consider consolidating credit card debt. Seek a lower interest rate, or maybe even some type of fixed, personal loan. If you can keep your interest rate constant (and not influenced by the federal reserve) that would be a huge positive. It will keep your monthly payments steady throughout 2018 and future years, which will help you budget.

If it is impossible for you to keep up with your monthly payments in 2018, then hardship assistance programs on credit card debt are a good option. Most lenders offer them to struggling families. You will need to call and inquire with your lender. They often require proof of the hardship, income, etc. so be prepared.

But really, at the end of the day, you need to stop ringing up debt on your credit card. Budget to spend only what you can afford to pay. If you do use a credit card, for say maybe the rebates or travel points, then pay off the balance each and every month during 2018. Make this the year you start to plan, budget, and live within your means.

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