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How Much Credit Card Debt

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Average Credit Card Debt By State And Region

How to manage credit card debt during COVID-19

How much credit card debt the average American has is impacted by where they live.

In Q3 2020, an Experian analysis found that people living in Alaska had the highest average credit card balance at $6,617 per person. The states where people had the next highest debts were Connecticut , Virginia , New Jersey , Maryland , Texas , Georgia , District of Columbia , Florida and Hawaii .

The state with the lowest average credit card debt is Iowa with $4,289. The states with the next-lowest average credit card debts were Wisconsin , Kentucky , Idaho , Mississippi , South Dakota , Indiana , Vermont , Maine and Oregon .

Average Credit Card Debt by State

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How To Review A Credit Card Offer

Investigate these details before obtaining a credit card:

Variable Rate or APR: The initial rate offered may increase after an introductory period or when the card company raises the base rate.

Grace periods: The disclosure defines the number of days before interest is charged on a new purchase. This helps you know when to pay your bill to avoid extra interest and fees.

Late payments: Beyond basic fees such as those for late or returned payments, the card company can automatically raise your interest rate if you miss or are late on two payments. There is also universal default when a late payment on one account leads to an increased interest rate on another account.

: If your credit limit is $2,000 and you charge enough during a permanent change of station to raise the total balance to $2,020, you can expect a fee of $10, $20, or more.

You Cant Afford To Make More Than The Minimum Payment

If you can only afford to make the minimum payment on your credit card balance, you have way too much debt and will likely be trapped for years. Heres how the math works.

Lets assume you have a $5,700 credit card balance. The cards interest rate is 17.98% and minimum payments amount to 2% of your total balance.

Well, if you stuck to only making minimum payments, it would take you more than 30 years to pay off your balance. And despite only borrowing $5,700, youd pay back a total of $19,967.60. Thats the devastating impact of compound interest at a rate of 17.98%.

Do you know whats even scarier? These are all typical numbers. According to Value Penguin, American households carry an average credit card balance of $5,700. Youll recall from earlier that 17.98% is the average interest rate on new credit cards. Lastly, minimum payments hover between 2% and 4% of a cards balance.

Even scarier still is the reality that if you cant afford to exceed your minimum monthly payment, you probably cant withstand a financial emergency, either. Such an emergency which happens to all of us eventually could render you unable to make any credit card payments at all.

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Are You In A Credit Card Debt

20 year olds are the soft target for issuers. The employers want a young and dynamic crowd at the workplace and may offer you various incentives to stay on your job and this attracts the credit card issuers. It is easy to get entangled in the chains of debt and one needs to take precautions at the earlier stage to not go overboard on using the credit card. Though credit card is a good way of starting a line of credit and if you pay all your bills on time, you will have a good . The credit card issuers keep an eye out for people who make good money and sweet talk you into believing that the deal being offered to you is the best that you can get in town and will tell you that it has the lowest interest rates and easy instalment options are available and you will get money back on all the purchases. You will not know any better and take up the deal without comparing with other credit cards available in the market.

Act Quickly If You Cant Make Payments

When Should You Refinance Credit Card Debt?

If your credit card debt has gotten so excessive you cant keep up with monthly payments, you need to act fast. Read this article for some tips on getting caught up.

One often-overlooked strategy is to contact your credit card provider and explain your situation . They might have more sympathy and flexibility than youd expect.

Its a much better approach than letting yourself slip behind and hoping things somehow work out on their own. They never do. You have to be proactive and reach a suitable arrangement with your creditors.

One approach some credit card companies take is to offer you whats known as a workout agreement. This involves reducing or even completely eliminating your interest rate and bringing your monthly payments down to a more manageable level.

Yes, you read that correctly. Credit card companies often do these things for people. Pick up the phone.

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How To Handle Too Much Credit Card Debt

The first step is to evaluate the problem. If youre overspending, then its time to create a budget and stick to it. This may require cutting unnecessary expenses or creating a schedule of your monthly bills so you avoid costly late fees.

Paying more than the minimum monthly payment is also important. If youve only been paying the minimums, then youll need to adjust your spending so you can increase your monthly payments. Otherwise, youre only treading water and not making real progress.

Many financial experts agree that some debts are healthier than credit card debt.

For many people with high credit card debt, month-to-month payments are simply too high for them to ever pay down the principle. If this sound familiar, you can try a couple of things to make payments more manageable:

  • Find additional income such as a part-time job
  • Apply for a credit card balance transfer to a card with a lower interest rate or 0% introductory rate
  • Consolidate your credit card debt with a type of personal loan called a debt consolidation loan

You May Have Difficulties Getting Other Loans And Credit

If you have a high debt-to-income ratio, lenders are likely to consider you a risky borrower. As a result, you may struggle to qualify for lines of credit, including:

  • Auto loans
  • Mortgages

For instance, in most cases, you need a 43% or lower DTI to get a qualified mortgage, which is more affordable than other mortgages due to its favorable terms. 78

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The Minimum Payment Trap Is Creating More Debt

One of the most common ways you can let your credit card debt get out of control is to rely on minimum payments. Most credit cards require you to make a minimum payment each month on your outstanding balance. The minimum payment is usually a percentage of your balance, but it can also be a fixed amount.

Though its wise to pay off your credit card balance in full each month, many people opt to pay only the minimum amount. Because there are no immediate consequences for paying only the minimum, people are easily tempted to defer payment into the future. Some people only contribute the minimum payment because they lack money for various reasons or are preoccupied with paying for other expenses.

Check out these 8 ways on reducing your credit card debt.

Dont Forget About Compound Interest

Making only the minimum payment on your credit card balance can quickly lead to serious debt problems. The danger comes with compound interest. In the case of credit card debt, compound interest is the interest that is calculated based on the amount you borrowed plus the accumulated interest from previous periods. To put it another way, youre being charged interest on any interest charges you dont pay off.

If you struggle with credit card debt, try opting for a low-interest credit card.

Tips For Managing Credit Card Debt

How to pay off your credit card debt
  • Make a Budget & Stick to It: Its difficult to spend within reason or plan savings if you dont know how your monthly spending compares to your take-home pay, or where that money is going. That is why you should rank-order your expenses including debt payments, emergency fund contributions and other savings and trim the fat, if necessary.Most importantly, once you develop your budget, make sure to stick to it or else youll have simply wasted your time.
  • Build an Emergency Fund: With a safety net of cash to fall back on, you wont be as likely to fall behind on your bills in the event of emergency expenses or unplanned joblessness. Your goal should be to gradually save about a years worth of after-tax income. In other words, set aside a little bit every month until youve got a nice cushion.
  • Improve Your Credit: This might sound a bit counterintuitive, seeing as more credit could mean more debt. But improving your credit standing will have a dramatic impact on the cost of your debt. And reducing the cost of your debt will allow you to pay it off faster. Better credit can also make it easier to find a job or a place to live, both of which impact your bottom line.You can check your latest credit score for free and get personalized credit-improvement tips on WalletHub.
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    How Credit Scores Affect Mortgage Applications

    Falling behind on minimum credit card payments or carrying a balance thats more than 35% of your total credit limit can hurt your credit rating. Thats a problem, because lenders use to determine overall mortgage eligibility as well as the interest rate youll pay.

    Banks usually wont approve borrowers whose scores are less than 600, while trust companies require a score of 550 or more. Even if lower-score applicants are approved, the rate of interest offered will be extremely high, since the most favourable rates are reserved for applicants with the best credit their history with borrowing and repayment indicates they are lower-risk.

    Higher interest rates translate into higher mortgage payments, which in turn lowers your mortgage loan affordability.

    Sign Up For Credit Counseling

    Feel overwhelmed by your debt and not sure if any of the above solutions will work for you? A reputable nonprofit agency may be able to help. Most credit counseling agencies offer debt management plans . The agency may negotiate with the credit card companies on your behalf to lower both your interest rates and your monthly payments. You make one monthly payment to the agency, which distributes the funds to your creditors.

    One caveat: if you sign up for a DMP, youll have to close the credit card accounts that are part of the plan. The downside: this reduces the amount of credit available to you, changing your and likely lowering your credit score. But getting out of debt will make your credit stronger in the future.

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    Your Credit Utilization Rate Increases

    When it comes to your credit score, your credit utilization ratio makes up about 35 percent of the FICO score used by credit card companies and lenders to determine creditworthiness. Its easy to calculate your credit utilization ratio, which is the percentage of revolving debt you have in relation to your amount of available credit.

    For example, if your credit card limits total $10,000 and your credit card debt is $6,000, divide the total balance by the total of your credit limit to find your credit utilization rate. In this scenario, your credit utilization ratio would be 60 percent. Thats way too high.

    Personal finance experts recommend keeping your credit utilization rate under 35 percent to keep the ratio from negatively affecting your credit score. Thats where closing a credit card and eliminating the cards accompanying credit limit can lower your credit score.

    If your credit card is maxed out and youll gain more self-control by closing the account, hold off on getting rid of that account. If you close the credit card, that action will lower your amount of available credit, which will raise your credit utilization ratio, lowering your credit score.

    Instead of closing the credit card, focus on halting new transactions and paying down that cards debt to lower your credit utilization rate and raise your credit score.

    Find out: What is Credit Utilization and How Does it Impact Your Score?

    Before Tackling Debt You Need To Track It

    Average American Credit Card Debt by State

      Tracking your debt is an important aspect of managing your finances, but facing what you owe can be intimidating. Ignoring your debts may save you from the stresstemporarily at leastbut it’s not a smart move.

      Debt, especially high-interest-rate debt, can spiral out of control if you ignore it, cautioned Madison Block of the American Consumer Credit Counseling.

      You may be unsure about where to find details of all your debts, but the information isn’t too hard to track down. We’ll show you how to pull together a list of your accounts, and walk you through some tips on organizing the information so it’s easier to take action on.

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      How Much Debt Does The Average Person Have In Canada

      The average household in Canada is living in poverty, having $1.Their monthly income is only 73, so they have high debt.Now that the national currency has been at $1, Canada has gained considerable value.Each dollar they earn amounts to 73 dollars in debt.We have a large sum of money.An estimated $1 trillion dollars of debt is owed by the United States.Residential and non-residential debts are not included in these categories.

      Do I Have Too Much Credit Card Debt

      According to a 2021 Consumer Credit Card Market report, the average American had $5,000 in credit card debt as of 2020. 1

      Having more debt than the average doesnt necessarily mean you have too much debt. Likewise, having less debt than the average doesnt mean youre in good financial standing. The safe amount of debt depends on your individual financial situation.

      To determine if your credit card debts have spun out of control, watch for these five signs that you have too much debt:

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      Average Credit Card Debt By Level Of Education

      Average credit card debt is higher for Americans with higher levels of education.

      College graduates have the highest average credit card debt at $7,940. On the other hand, those with no high school diploma have $3,390 in average credit card debt.

      The most reasonable explanation for this is each group’s respective income. Median income increases at each level of education. As an example, Americans with a bachelor’s degree earn over twice as much as Americans with no high school diploma. Higher income, as we saw earlier, corresponds to higher credit card debt.

      Educational attainment
      2021 16.2%

      Interest income makes up a significant chunk of credit card company earnings. It was 43% of the $176 billion credit card companies made in 2020.

      Trends In Credit Card Debt

      I’m $6,000 in Credit Card Debt, How Do I Start to Pay It Off?

      All that spending showed in profits for credit card companies, which reached $22.93 billion in 2015, up from $22.67 billion a year earlier.

      By contrast, two other major trends took place in 2015 in the credit card world and both benefit consumers: tighter security standards are in place and mobile transactions are becoming a huge part of the industry.

      Improved security became an issue because of the number of security breaches at major retailers in recent years, including Target , Sony , Anthem Insurance and Home Depot . That made credit card fraud a major headache for cardholders, merchants and card companies alike. The Nilson Report says that fraud losses in the United States reached $8 billion in 2015.

      That helped pave the way for the introduction of the EMV chip card that became a standard part of credit card transactions in October of 2015. The EMV chip makes duplicating card information difficult and should have a huge impact in reducing card fraud. No data is available yet on its effectiveness in the U.S., but the card has been available in England for years. Fraud in the U.K. dropped there from a high of $937 million dollars in 2008 to just $524 million in 2011 a 45% decrease. The U.S., home to 52% of the and fraud in the world, is hoping for similar results.

      In the meantime, the up-and-down world of credit card debt is on an upswing.

      Men own 29% more credit card debt than women . Alaska has by far the highest debt, ahead of Colorados and Connecticut .

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      You Risk Losing Your Property

      If you arent able to pay your credit card debt, your creditors and collectors may file a lawsuit to collect what you owe them. If you respond to the lawsuit too slowly, ignore it altogether, or lose in court, you could end up with a judgment filed against you.

      Judgments allow your creditor or collector to do any of the following: 9

      • Garnish your wages . 10
      • Collect money from your bank account.
      • Put a lien on your real property, such as your car or home .
      • Put a lien on your personal property .

      Work With Your Creditors

      Reach out to your creditors to explain your situation. A credit card issuer may be willing to negotiate payment terms or offer a hardship program, especially if youre a longtime customer with a good track record of payments.

      If your issuer offers a hardship program, it may provide relief when circumstances beyond your control like unemployment or illness impact your ability to manage payments. Whether you negotiate with your issuer or accept the terms of a hardship program, either option could lead to more affordable interest rates or waived fees, depending on the issuer.

      These small changes might be just enough to help you get a handle on your debt, and the worst that can happen is they say no.

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