Broadcast Retirement Network’s Jeffrey Snyder discusses the rise in long-term credit card debt with Bankrate’s Ted Rossman.
Jeffrey Snyder, Broadcast Retirement Network
Ted, Happy New Year. Great to see you this morning.
Ted Rossman, Bankrate
Great to be here. Thank you.
Jeffrey Snyder, Broadcast Retirement Network
We’ve been talking over the years about credit card debt. I was hoping that people would make a lot of headway into paying down that debt, but it seems like long-term credit card debt has actually increased.
Ted Rossman, Bankrate
That’s right. A lot of this speaks to the cumulative effect of inflation. Years of higher prices, higher interest rates.
Right now, 61% of people with credit card debt have had it at least a year. That’s up 8 percentage points from a year ago. That’s a pretty big jump in a year, and a lot of it does have to do with that cumulative effect.
A lot of people have cut into savings. They’ve taken on debt. It’s harder to pay off that debt with interest rates near 20% on average.
It just kind of stacks up on itself, and it’s a persistent problem for millions of households.
Jeffrey Snyder, Broadcast Retirement Network
And it’s hard. Once it starts building, it’s like that rock going down a hill. I don’t know what other analogy to use, or domino.
It just keeps on piling up and piling up. And these, because it’s unsecured debt, we’re talking double-digit interest rates, right? I mean, we’re talking in the high teens here.
Ted Rossman, Bankrate
That’s right. The average is 19.7, but a lot of people are paying 25%, 30%, sometimes even more, especially if you have a lower credit score. It’s important to note that a lot of people get into credit card debt for practical reasons.
There’s very much of a stigma around credit card debt, which I believe is unfortunate, because the truth is, it’s usually practical stuff that gets you into debt. The number one cause is an emergency expense. Some kind of unexpected medical bill, home repair, car repair, something like that.
The second biggest reason is just day-to-day expenses. And we see the high price of groceries has taken a toll in recent years. Childcare, just everything.
And it’s really stacked up on a lot of people. So credit card debt is one of these things that’s easy to get into and hard to get out of, unfortunately.
Jeffrey Snyder, Broadcast Retirement Network
So how do you curb the behavior? I mean, you can’t, you know, how do you stop and reverse the trend? So if I’m a person, I’m watching the show and I’m like, hey, that’s me.
And it could be Jeff Snyder, but hey, that’s me. I need to get a handle on things. Where do you start?
Ted Rossman, Bankrate
My favorite tip is to get a 0% balance transfer credit card. So this involves opening up a new credit card, one with a lengthy 0% promo, move your debt over to that, and really attack it forcefully. Try not to add any new purchases.
Don’t dig the hole any deeper if you can avoid it. Just take that debt. The average credit card debt load, according to TransUnion, is around $6,500.
So if you transfer that over to a card with a lengthy 0% term, some of these last as long as 24 months. The U.S. Bank Shield Visa comes to mind. If you freeze that $6,500 balance and you make 24 equal installments, you’re looking at less than $300 a month, interest-free.
That makes it feel a lot more attainable than trying to bite off that $6,500 all at once. So that would be my favorite idea. Get a 0% balance transfer card.
Really use that as a tailwind. If you don’t have great credit or if you have a lot of debt, maybe $10,000 or more, work with a reputable nonprofit credit counselor. Someone like Money Management International or Greenpath.
They can negotiate lower rates, maybe as low as about 7% over four or five years. They can really help you out as well.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, really important tips. I think it’s, is it more about the psychological thing? I’m just gonna, I’m just gonna do it.
I mean, it’s not enough to say, I’m not gonna go to Starbucks. I mean, sure, you can curb some of your behavior, but some of the things that you need to buy, you need to buy. You need food, you need shelter.
If you have children, you gotta feed, you have to feed them and buy clothes for them. So is it just about getting the mental image in your head about starting to do that?
Ted Rossman, Bankrate
You definitely need to get started. I was disappointed in our survey that less than half of people with credit card debt have a plan to pay it off. One in five think they’ll never get out of credit card debt.
You can get out of debt, but you need to be an active participant. You can’t just make minimum payments. Back to that $6,500 average debt load example.
If you make minimum payments at the average interest rate, around 20%, you’re in debt for 18 years and you pay over $9,000 in interest. That’s just not a suitable option. You really need to find ways to put more towards your debt.
I realize it’s not easy, but there are things you can do. Besides the balance transfer and the nonprofit credit counselor approaches, you could take on a side hustle. You could sell stuff you don’t need.
You could cut your expenses. You don’t need to do these things forever, but even in six months or a year, you could feel really meaningful progress. And in other words, it’s hard to build wealth when you’re sending the credit card company all these interest payments month after month after month.
You really do need to make it a priority, get on the other side of it. And that’s when credit cards can work for you. When you’re debt-free, you can benefit from rewards and convenience and all these buyer protections.
It’s just a very expensive way to finance things.
Jeffrey Snyder, Broadcast Retirement Network
And also the mental health aspects of it. Ted, this is going to sound like deja vu to you. But last year, I recall, in fact, this time talking about a cap on credit card interest rates.
It’s popped up again, this time from the president of the United States, President Trump, wants to cap interest rates at 10%. There’s already been pushback. I want to get your reaction to that just mere suggestion.
Ted Rossman, Bankrate
I don’t believe it will come to fruition. It’s a very interesting proposal because it’s a very different part of the political spectrum than the president usually deals with. This is more of something that Bernie Sanders and Elizabeth Warren would love.
Now, it sounds like a good thing on the surface, right? Lower credit card rates. That’s a win for everybody.
There are major unintended consequences, unfortunately. A 10% rate cap would just not be workable for banks. They would have to cut way back in terms of access to credit and rewards.
The Missouri Bankers Association has speculated that up to 90% of people could actually lose access to credit as part of this, especially those with lower credit scores. That cap is just far too low, unfortunately. Not that I want people in credit card debt.
Like I said, there are ways you can get cards working for you by paying in full, by getting a 0% balance transfer card, things like that. I just worry that this cap, if enacted, would actually really hurt a lot of the people that it’s meant to protect. A lot of people would lose access to credit in this kind of hypothetical scenario.
And then what? Are they turning to payday loans or other really high cost alternatives? Credit cards are a necessary tool.
We just want to make sure that we’re using them smartly.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, you probably don’t want to go to the mob because they charge a very high interest rate. And there also are consequences if you don’t pay in all seriousness. Ted, we’ve had a great conversation this morning.
What are some key takeaways? Take a minute. Got about a minute left.
Take that time to kind of summarize some of the key takeaways this morning.
Ted Rossman, Bankrate
Credit card debt is a persistent problem for millions of American households. Half of cardholders carry debt from month to month. Six in 10 with debt have had it for at least a year.
The average interest rate is still close to 20%. Credit card debt is one to prioritize. When we think about just sort of the whole spectrum, the whole hierarchy of household debt, credit card debt is one where you want to pay way more than the minimum.
Of course, with all of your obligations, you want to keep up. But credit card rates are 3, 4, 5x, sometimes even more than other products. So instead of sending extra money to the auto loan or the student loan or the mortgage, pay the minimum there, but pay way more than the minimum on the credit card.
Really, the best way to use credit cards is to pay in full, get them working for you, not against you.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, the consequences are just far reaching over time. Ted, always great to see you. Thanks for joining us.
And we look forward to having you back again very soon. My pleasure. Thank you