Yet while card balances remained $ 140 billion lower in the middle of this year compared to late 2019, they began to increase in the second quarter of this year, increasing by $ 17 billion from the first quarter. , according to New York Federal Reserve.
Some indicators suggest that household debt is becoming a concern for some consumers. The share of people judging their debt-to-income ratio to be “very unhealthy” doubled in the third quarter, from 8% to 16%, according to the report. U.S. Consumer Credit Counseling Financial Health Index.
And an online survey from Bankrate.com found that more than a third of people who had card debt before March 2020 saw their balances increase during the pandemic.
Here are some questions and answers about managing credit card debt:
What’s the best way to pay off credit card balances?
Since credit cards typically charge double-digit interest rates, most financial advisors agree that you’ll save the most money if you focus on paying off the card with the rate first. highest interest. “I prefer the avalanche method,” said Benjamin Jacobs, a paid financial planner in Athens, Georgia, using a common name for this approach.
Here’s how it works: Make the minimum payment on all of your cards to avoid late fees, but put all the extra money you have on the highest balance. When this balance is paid, move on to the next card, and so on.
But some people may be more motivated by paying off the card with the smaller balance regardless of its interest rate. The mechanics of this approach, sometimes referred to as the “snowball” method, are the same: pay the minimum on all cards, but put extra money on the smaller balance until it disappears, then spend. to the next card. “I love the snowball because you have instant success,” said Melinda Opperman, president of Credit.org, a nonprofit financial advisory agency in Riverside, Calif.
If you are feeling overwhelmed and falling behind on your payments, you may want to consider seeking help from a nonprofit credit counseling agency. These agencies can help you assess your situation and negotiate a plan with your card companies to allow you to pay off balances over time, typically over two to five years. The National Foundation for Credit Counseling can help you get started.