As inflation has soared in recent years, nearly half of Americans have begun to rely more on credit cards to make ends meet. And even though inflation levels are decreasing, families continue to rely on these lines of credit.
A survey of 1,000 U.S. adults by consumer website Debt.com finds that 45% of Americans have been pushed by inflation to use their credit cards much more frequently.
Inflation has taken a toll on consumers, peaking at more than 9% in June 2022. Fortunately, interest rate increases by the Federal Reserve have (so far) proven effective in bringing them back down. But while the Fed has hit the pause button on its interest rate hikes to fight inflation and expects to reverse them at some point in 2024, the effects of high prices still loom large on personal finances.
According to survey, half of Americans have higher credit card balances due to inflation, with 1 in 5 Americans owed between $10,000 and $20,000 on credit cards alone. More than a third (35%) say they maxed out their credit cards at some point in the last few years. And more than 35% of respondents report having an average annual percentage rate (APR) on credit cards of 20% or higher.
Get out of credit card debt
The Debt.com survey found that 58% of Americans have never tried the possible solutions highlighted below to get out of their debt. Keep in mind, however, that the survey didn’t necessarily focus only on people struggling with debt. It included all Americans – and many of them have no debt to pay.
Among those who have explored different strategies to help pay off credit card debt, here are five of the most popular options:
Debt settlement
Debt settlement, a strategy considered by 1 in 10 respondents, is the process of negotiating your credit card debt with your creditor. This may be a negotiation you can handle yourself, but there are also many third-party debt resolution companies.
However, debt settlement is not a guaranteed thing; your lender does not necessarily have to agree to settle and accept less than what you owe. It’s not the fastest method available and can lower your credit score, making it a riskier path. You will also have to pay the settlement company; commissions tend to average between 15% and 25%, paid upon settlement.
Credit consultancy
Sometimes, all you need is a little know-how. Credit counseling, considered by 13% of respondents, is a good route for those who think they can manage their debt as it is but need guidance. Credit counselors provide their clients with the educational aspect of debt management and can help you identify personal goals for managing your unique debt case.
Often, however, credit counseling comes at a price. While many services offer free first sessions, companies can charge up to a federally set $79 in debt management plan (DMP) fees and an additional fee that averages around $40.
DIY plan
One of the cheapest ways to manage debt is do-it-yourself planning. Most credit counselors charge fees to help you come up with your debt management plan, unless you use a nonprofit or other method of free assistance.
An alternative is to plan ways to get out of debt on your own. Options range from creating a budget and reducing expenses to evaluating errors in your credit report. About 11% of respondents have tried DIY methods to get out of credit card debt.
Debt consolidation loan
Debt consolidation is the practice of moving multiple debts into one loan, so you don’t have to worry about paying multiple bills each month. One of the most popular debt management methods, 14% of Americans have considered trying it.
For some people, this could make the debt load more manageable and can sometimes even lead to a lower overall interest rate. Disadvantages of this management method include origination fees to creditors and longer repayment periods.
Credit card balance transfer
One popular type of debt consolidation is credit card balance transfer. These credit cards allow you to consolidate your credit card balances and outstanding loans into one new credit card.
The best balance transfer credit cards often offer lower interest rates and friendly introductory periods; many offer 0% APR for the first 12 to 21 months. Balance transfer credit cards are the most popular option among Americans in the survey, with 19% seeing them as a way to manage their debt.
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