Credit card debt got you down? You’re not alonePosted by Donna Freedman on Oct 18, 2016 | 15 comments
Almost seven in 10 people surveyed by the National Foundation for Credit Counseling say their biggest financial worry is credit card debt.
Of the 1,869 respondents, 69 percent cited plastic arrears as being much, much scarier than having enough for retirement and emergencies (13 percent), paying off student loans (10 percent) or finding affordable housing (7 percent).
About 19 people checked answer E: “Nothing, I have no financial worries.” Lucky them.
It’s likely that most of the people reading the nonprofit agency’s website are already having money issues. But it wouldn’t surprise me if a decent number of the general population were also worried about credit card debt. And if they aren’t, maybe they should be.
According to NerdWallet’s 2015 American Household Credit Card Debt Study, we’re sinking into debt – and sometimes the reason isn’t cute shoes or courtside tickets.
“While median household income has grown 26 percent since 2003, household expenses have outpaced it significantly – with medical costs growing by 51 percent and food and beverage prices increasing by 37 percent in that same span,” notes study author Erin El Issa.
Yet there’s tremendous shame associated with credit card debt, even if you’re going into the red to pay for essentials like medical treatment. Seven in 10 people surveyed by NerdWallet believe there is “a greater stigma around credit card debt than any other type of debt.”
Not that we apply the shame-brush equally. Only one in four of those surveyed say they’d judge a relative or friend for having credit card debt. However, almost half of them said that a card balance would make a potential suitor less interesting.
“The stigma is real, and it can be damaging and counterproductive,” says Sean McQuay, credit expert at NerdWallet.
“My message to Americans in debt: You are not alone. Reach out and see what’s worked for other people. Don’t ignore your debt – come to terms with it, and climb out of it.”
Slaying the credit card debt dragon
How does a debtor climb out? Let’s round up some of the usual suspects:
Track spending. Until you know where your money is going now, you can’t redirect it. Some swear by budgeting tools like Mint.com and PowerWallet.com; others kick it old-school with pen and paper and, maybe, spreadsheets. Do what works for you. Just get control of your cash.
Cut expenses. Once you know where your dollars currently go, you can look for ways to cut back. Pick the lowest-hanging fruit first, such as car insurance and cellphone plans. Next, get serious about trimming expenses for things like food eaten away from home (the coffee cart falls into this category), recreational shopping, apps and other downloads, and pretty much anything that isn’t a true need. As you reduce expenses, throw the saved dollars at your credit card debt.
Build an emergency fund. If you break your glasses or the car starts making a funny noise, you’ll be able to cover some or all of the costs with cash. Not adding to the debt you’re paying off = considerably less stress.
Look for a side hustle. This doesn’t work for everyone, but even an occasional part-time gig will help you retire debt/build savings faster. It need not be an official job such as bartending or retail; “find a niche and fill it” is a great way to bring in extra dollars. Once I interviewed a woman who walked a bunch of neighborhood children to school along with her own kid, earning $5 per kid for doing something she was going to do anyway.
Ask the NFCC for help. Credit counselors can help you build a budget, identify money leaks and maybe even negotiate lower interest rates with your creditors. This assistance is offered on a sliding scale basis, which means it could be free or nearly so.
(Note: I cover such tactics in “Your Playbook For Tough Times: Living Large On Small Change, For The Short Term Or The Long Haul.” From now through Oct. 31 you can get a PDF of the book for just $5 by visiting this link and typing in the code NFCC.)
Credit is a tool
If you have credit card debt but aren’t particularly worried about it, I’d be interested in hearing why. I can’t think of a worse way to not-leverage your money.
Even if the balance is on one of those zero-percent balance transfer cards you could still be walking the knife’s edge. Can you really predict that you will be able to pay it off in time? Having the amount in the bank right now doesn’t mean you’ll have it in the bank six months from now.
Understand: I’m not saying credit is bad. In fact, points from credit rewards credit cards and programs like Swagbucks and MyPoints will have paid for at least 90 percent of my birthday and holiday shopping this year.
Some frugality experts think that credit is a terrible idea. “Cash is king!” they trumpet, pretending that the current credit-score system doesn’t exist. Ignore credit cards and/or personal loans entirely at your own peril, however. If you don’t have a credit history you’ll pay more – probably a lot more – for things like vehicle loans, insurance and mortgages.
Is that fair? Not particularly. But it’s the system we have right now. A savvy consumer will learn to work within it.
Readers: What are your biggest money concerns at the moment?