Credit card crisis during the pandemic

It is slowing down but still far from over.

WalletHub statistics show that in the first quarter of 2021, Americans paid off a whopping $56.5 billion in credit card debt.  

Personal finance website found that the U.S. credit card debt delinquency rate was 1.22%, and expected this figure to increase to 1.27% by the end of 2021 as people struggled with paying off credit card bills in addition to personal loans, mortgages, auto loans, and student loans.

Background

Here is a look at how Americans paid down their debts last year:

– Bankruptcy filings topped $1 billion and they are expected to increase next year as personal finances continue declining;

– The average amount of credit card debt per borrower in America amounted to $6,906 last year;

– This number increased by 6% since 2015 alone but was still lower than the 2008 record high of $8,655 per borrower.

The personal finance website also stated that today the average credit card debt per borrower is a whopping $8,300. But it’s not as bad as it seems, because personal finances are improving – at least compared to previous personal finance disasters like during the Great Recession and due to the housing crash in 2008. WalletHub statistics also show that:

– American personal income rose by 1.5% between 2015 and 2016;

WalletHub data further showed an increase in personal incomes from $55,505 last year to $56,516 this year (an increase of 1.5%). This also implies that Americans have more disposable income than last year – making them less prone to incur personal debts or credit card debt since they can easily pay off personal loans.

So there you go – if you combine WalletHub statistics with those from personal finance websites, it’s easy to see that personal finances are in constant flux. In other words, your personal finances may be great this year but bad the next year and vice versa. It’s important for you to monitor personal finance trends in order to ensure that your personal finances are always as excellent as possible at all times.

Credit card debt is one of the most common problems for those with serious financial challenges. It often leads to high-interest rates, harassing debt collection calls, and unreasonable hidden fees that can make your life miserable. And worst yet the feeling you get: there’s no way you’ll get rid of it!

There is little relief from looking at outstanding balances on account statements. This never-ending cycle makes people feel powerless over their finances which contributes greatly to mental health issues such as depression.

Using filing for bankruptcy as last resort

Filing for bankruptcy is a viable option for those struggling with insurmountable credit card debt. The quickest form of consumer bankruptcy that forgives most unsecured debts like credit card debt, medical bills, and personal loans is Chapter 7. However, there are certain qualifications you must meet in regards to income, assets, and expenses to file for Chapter 7 bankruptcy, which is determined by the bankruptcy means test. You should always consult with a lawyer before any legal proceeding. 

Chipping away at credit card debts 

It may be daunting to pay off credit card debts, but never impossible! You may think having a budget is ridiculous at first. It’s a tough challenge to begin saving but it’ll be worth it in the end. 

Start categorizing your priorities. There are a few techniques you can use to pay off credit card debts. The two most common ones are Debt Avalanche and Debt Snowball. Let’s take a look at the difference. 

Debt Avalanche

With the debt avalanche method, you pay extra money toward the debt with the highest interest rate. By prioritizing paying off high–interest debts, you can save hundreds of dollars in interest. If you have larger amounts of debt, the avalanche method can also reduce the time it takes to pay off the debt by a few months.

Debt Snowball

You pay down the smallest debt first and work your way up, regardless of the interest rate.

Debt Avalanche vs Debt Snowball Example

Let’s say you have $3,000 extra to devote to debt repayment each month, the debt avalanche method will make your money go the furthest. Imagine that you have the following debts:

• $10,000 credit card debt at 18.99% annual percentage rate (APR)

• $9,000 car loan at 3.00% interest rate

• $15,000 student loan at 4.50% interest rate

In this scenario, the avalanche method would have you pay off your credit card debt first, then allow you to pay off your remaining debt in 11 months, paying a total of $1,011.60 in interest. The snowball method would have you tackle the car loan first, becoming debt-free in 11 months, but you would have paid $1,514.97 in interest. (SOURCE: https://www.investopedia.com/)

Another way to save is to join co-savings groups with friends and family. You can make saving money fun because you can do it together with friends or family members! Savings and credit systems that exist today are often inaccessible, opaque, or require a large amount of trust.

Our savings platform can help you save the money needed to pay off your high-interest credit card debt.

By joining a group with friends or family members who trust one another, everyone can save together toward common goals like paying off debt or buying something big like a house. Your savings are automatically transferred from your bank account into the group pot every cycle so you don’t have to think about it! Plus, when each cycle ends every member gets paid out their share of the pot instantly—no waiting around for monthly statements here!

Download the app now and make sure to invite your friends too!

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