What To Do If You Have Too Much Credit Card Debt
Alright, lets say youve gotten to this point in the article and concluded that you, indeed, have too much credit card debt. Below, youll find some tips regarding what to do about it.
Believe me ;youll want to do something about it. While there is a statute of limitations on credit card debt, that can be as long as 15 years. In other words, your debt isnt going away on its own.
You Have Physical Complaints
Life is life, and money is not always that what brings us happiness. It may happen that besides the problem in your wallet, you are also physically suffering. This may concern physical severe diseases and emotional distress: you sleep badly because you worry too much and do not perform enough at work. You have difficulty concentrating because your thoughts are elsewhere. Now is the time to do something about your problems.
All Generations Reduce Balances
Though members of all generations have credit cards, each age group uses them differently. Members of younger generations typically carry lower balances and have lower credit limitsand as a result, utilize more of their available balance. Older generations are the opposite, carrying higher balances on cards with high credit limitsand have lower utilization.
Members of older generations decreased their debt at a higher rate than younger Americans in 2020. The silent generation, which includes Americans age 75 years and older, saw their average credit card debt decrease the most, shrinking 16% in 2020, according to Experian data. On the opposite end of the spectrum, Gen Z adultsAmericans ages 18 to 23only saw a 6% decrease during the same period.
|Change in Average Credit Card Debt by Generation|
Though members of older generations cut a larger share of their credit card debt in 2020, the younger generations had greater reduction in credit utilization by paying down their balances. Members of Generation Z dropped their average utilization rate by 4.7 percentage pointsthree times as much as members of the silent generation. While older Americans have lower utilization overall, they also have much higher credit limits.
|Change in Average Credit Card Utilization by Generation|
|-1.6 percentage points|
|Change in Average Credit Card Limits by Generation|
Read Also: What Credit Score Is Needed For Allegiant Credit Card
How Much Debt Is Too Much
The problem isnt having debt, its not being able to pay it off. When debt no longer provides value, and instead is a burden, it can become too much to handle. Since everyones financial situations are different, theres no magic number to determine if you have too much debt. But there are some indicators that can help you see where you stand.;6 common signals that someone may have too much debt include:
Before you read on, please know that we recognize everyones financial situations are different. We are providing this information about credit card debt to help you get a better understanding of your financial situation and to give you practical ideas on how to move forward. There is no such thing as too much debt as long as you are paying your bills and making progress on your financial goals. If you are truly struggling with credit card debt, take a look at this video, that gives you everything you need to know about managing debt and credit counseling.
You can;calculate your debt-to-income ratio;by adding all of your monthly debt payments and divide it by your gross monthly income.
Get A Side Hustle Or Sell Your Stuff
If you have bad credit and cant get a balance transfer card or a personal loan, bringing in extra cash may be the way to go. One option is to get a side gig that fits your schedule. You could get a part-time job, become a freelance writer or offer a service like walking dogs or mowing lawns.
Another possibility: sell electronics, furniture, unused exercise equipment or other valuable items that are collecting dust around your home.
Finally, you may be able to borrow money from a friend or family member. Raising extra money is one of the best ways to get out of debt because you can chip away at your principal and reduce the amount of interest you pay overall.
Read Also: How To Check Your Visa Credit Card Balance
Your Credit Utilization Ratio Is 30% Or Higher
Your credit utilization ratio is the percentage of available revolving credit youre currently using. Say, for example, you have a $4,500 balance spread out across three credit cards with $5,000 limits. Your total available revolving credit is $15,000. Your balance of $4,500 represents 30% of this amount. In other words, you have a credit utilization ratio of 30%.
Remember, only revolving credit factors into this calculation. These are loans that dont close once youve paid them off but, rather, allow you to borrow on a continual basis. Your credit card is one such form of revolving debt. Car loans, student debt, and mortgages, meanwhile, are installment loans and have no bearing on your credit utilization ratio.
Generally, you dont want a credit utilization ratio above 30%. According to Experian, lenders see anything higher as evidence that youre having difficulty managing your finances.
Heres what following this guideline looks like at various levels. The danger zone is the point at which your debt touches 30% of your available credit.
|Total available credit||Danger zone based on the 30% rule|
Many people dont realize debt works like this. They assume that available credit is, well, available for use without penalty. This isnt the case, though.
But my credit limit is so low!
You can always call and request a review if the limit seems unfairly low. However, dont use a low limit as an excuse to overextend yourself.
Do I Have Too Much Credit Card Debt
Any one of three formulas that can help you identify when you have too much credit card debt.
Your credit utilization ratio is your total credit card balance divided by your credit limit. Its the percentage of your available credit limits that youre actually using. It has the second biggest impact on your credit score, right behind your payment history. The lower your , the better. A ratio greater than 30% will usually hurt your credit score.
Your debt-to-income ratio is your monthly debt and housing payments divided by your gross monthly income. Your debt-to-income ratio shows how much of your pretax income goes toward monthly housing and debt payments, including payments on credit cards. Lenders look at this ratio when theyre reviewing new credit applications to determine how much more debt you can take onor not take on.
A debt-to-income ratio greater than 40% indicates you have too much debt and makes approval unlikely. Many banks and credit counselors recommend keeping it closer to 30%.
Your credit card debt ratio is your total monthly credit card payments divided by your total monthly income. This ratio tells you when your payments are too much for your budget. Paying for routine expenses and necessities can become difficult if your minimum required payments are more than 10% of your take-home income pay after taxes are withheld.
There are also some nonmathematical signs that you might be overwhelmed with credit card debt:
You May Like: Can I Get My Credit Card Debt Forgiven
Consequences Of Not Making Minimum Monthly Credit Card Payments
If you stop making the payments on a credit card, there will be consequences:
- You may lose entitlement to rewards under the credit cards rewards program
- Your creditor will attempt to collect money from you
- There will be a negative impact on your credit score and your credit report
- You may experience adverse consequences from the right of set-off
- A Licensed Insolvency Trustee can legally protect you from the consequences of unpaid credit card debt.
If you are worried about the consequences of unpaid credit card debt, your first step is to make a commitment to speak with a Licensed Insolvency Trustee to explore your debt relief options.
Inquire About The Timetable
To put it in another way, find out how long it will take to complete your debt settlement process. Usually, it takes two to four years to settle the debt. However, during this time, your creditors have accumulated fees and interest rates on your debt.
Why is this so? Because when making each affordable monthly payment to a debt settlement company, you stop making any payments to your unsecured credit card debts.;
Instead, you put that money in a special savings account.;
For the record, if you stop paying your credit card debt, your creditor can eventually sue you or have debt collectors on your doorstep. That messes up your credit score and future credit usage.
However, always remember that your ideal debt settlement company should help you avoid these extremes. So, always choose wisely and go for experts who value you. They can always advise on how improve your credit history.;
Recommended Reading: How To Withdraw Money From Credit Card
How Does Debt Settlement Work
You may opt to settle your credit card debt, but MasterCard needs a pretty good reason to forget the $8,000 they shelled out for you.
From their point of view, you most probably owe an added amount in interest two or three years from now. So, theyll motivate you to pay then inform other lenders via your credit report that you owe them money.
So, you have two issues to take care of:
If you opt for debt settlement, heres how it works:
You sign up with a debt settlement company. Theyll negotiate with your credit card company and agree to pay them a smaller amount, such as 50% of what you owe. Youll then deposit that lump sum amount to the debt settlement company.;
And, of course, youll pay a small fee to the debt settlement company and forget about the credit card issues or monthly payments.
Its a relief saving as much as 50% of what youd have paid in total. However, youll still have a credit score to improve and other factors to consider.
For the best results, work with trusted professionals who can help fix both your credit debt and your credit score issues. That way, you can save money and have a better financial future.
Heres a simple process of hiring a debt settlement company:
Can I Buy A House With No Savings
A no-down-payment mortgage allows first-time home buyers and repeat home buyers to purchase property with no money required at closing, except standard closing costs. Other options, including the FHA loan, the HomeReady mortgage, and the Conventional 97 loan, offer low down payment options with a little as 3% down.
You May Like: How To Transfer Money Off Credit Card
Some Doing Better But More Struggling Financially Due To Covid
In talking about debt in 2020, its impossible to ignore how COVID-19 has affected Americans finances. When asked if their household financial situation had gotten better or worse since the onset of the pandemic, 14% of U.S. adults in the survey reported better, 42% say worse and 43% said their household finances stayed the same.
Of those Americans who say their household financial situation has gotten worse since the pandemic began, 51% say its because their household income decreased overall, 30% say its because they had an unexpected large expense and 22% attribute it to them losing their job, according to the survey.
Parents of children younger than 18, Latinos and Americans with household incomes of less than $50,000 have been hit particularly hard. Close to half of parents of minor children say their household financial situation has gotten worse since the onset of the pandemic ; of those people, more than 7 in 10 say its because their household income has decreased overall or theyve lost their job.
In the survey, Latinos are more likely to say their household financial situation has gotten worse than Black and white Americans . More than a quarter of Americans with household incomes under $50,000 say their household financial situation has gotten much worse since the onset of the pandemic .
To cope, some Americans have taken on debt credit card, medical or otherwise or withdrawn money from savings to pay for bills/necessities , the survey found.
What Are Aprs And How Will A Lower One Help Me
- Interest rate:;The percentage youll be charged by a lender for supplying you with a loan
- Includes the interest rate AND any fees charged by a lender when taking out a loan
So, an APR really gives you a broader scope of how much itll cost you to take out a loan. What this means is that the lower the APR you can get, the less youll be paying out over the life of your loan. In short, a lower APR means less money paid out of your pocket. Thats good news for the borrower.
Don’t Miss: Is Paypal Credit Card Good
Your Account Could Be Assigned To A Collection Agency
If your account remains unpaid for more than six months, then at some future date your creditor might assign your outstanding account to a collection agency for collection.
Large creditors have tens of thousands, and in some cases, hundreds of thousands of outstanding accounts. The most cost-effective way for a creditor to make money on its portfolio of bad credit card debt is to simply farm it out to one or more collection agencies on a commission basis. Here are the three primary activities of collection agencies:
- Attempting to locate current contact information for debtors
- Phoning debtors and making demands for payment
- Sending collection notices to debtors by mail and making demands for payment
The Debt Snowball Method
With the debt snowball method, youll focus on paying off your smallest credit card balance first, then youll work your way up to your larger balances.
Follow the steps:
Step 1: Continue to make the minimum payments on all your credit cards.
Step 2: Use your extra money towards the credit card with the smallest balance.
Step 3: When the credit card with the smallest debt is paid off, move on to the card with the next smallest debt.;
Step 4: Continue this process until all your debts are paid off.
The snowball method can be a good option for those who have several small credit card debts to pay off. This method lets you see progress faster, but you may end up paying more overall since youre not considering your cards interest rates.;
If you have money saved away for a rainy day, you may want to consider using some of your savings to help pay down your credit card debt. If your interest debt is higher than the amount of interest youre earning in savings, youre better off using some of your savings to lower your debt because carrying a high interest on a high balance will cost you more.
Carrying credit card debt can negatively impact your financial future. Paying it down means youll save on interest, improve your credit score and have more money available to put away for emergencies or an important savings goal.
You May Like: How To Change Usps Address Without Credit Card
Can I Buy A House With Maxed Out Credit Cards
Effects. If your over-the-limit credit cards dont disqualify you for a mortgage, youll still end up paying more over time than you would have had you carried lower credit card balances. A higher interest rate is the penalty many consumers face for presenting a higher than average risk to the lender.
Is It Better To Have Credit Card Debt Or Loan Debt
If youre struggling to afford credit card payments, taking out a personal loan with a lower interest rate and using it to pay off the credit card balance in full may be a good option. Choosing a longer repayment term than you would have needed to pay off the original credit card debt could cost you more in interest.
You May Like: What Is The Best Credit Card For Military
How Much Credit Card Debt Is Ok When Buying A Home
Buying a home can often be a very stressful time, especially if you are a first time buyer. Suddenly, you are surrounded by terminology that you have never heard before, and every financial interaction that you make is important.;
If you are thinking of buying a home, then you have probably contacted a financial advisor. Your financial advisor will be able to give you lots of information regarding mortgage eligibility, and they will ask you lots of questions to ensure they find the mortgage that is right for you.;
But one thing that might come up in conversation, which could cause you stress or anxiety, is credit card debt.
Debt generally isnt a good thing when you are applying for additional credit, so you might find yourself nervous about the implications of this debt. However, credit card debt doesnt mean that you will be unable to get a mortgage.;
In this guide, well be taking a look at how credit card debt affects your mortgage eligibility, and how much credit card debt is ok when buying a home. So with no further ado, lets dive right in.
How Does Debt Affect You Buying A Home?Can I Buy A Home If I Have Credit Card Debt?How Do Banks Calculate How Much Debt Is Ok?How Much Credit Card Debt Is Ok When Buying A Home?