Who’s dealing with the heaviest load?
Although credit card debt has seen a decline throughout the pandemic, many cardholders are still carrying an outstanding balance.
As of March, Americans collectively owed $807 billion across almost 506 million card accounts, according to analysis from LendingTree’s ValuePenguin.
Just over 45% of families carry some type of credit card debt, with high-earners and those with college degrees both holding the highest balances.
What accounts for the disparity?
Back in 2018, 40% of Americans revealed they would struggle to pay for a surprise $400 expense, according to a study from the Federal Reserve.
Not much has changed since then, as a report from the Fed last year showed that the number of Americans who could put together $2,000 for an unexpected bill fell dramatically throughout 2020.
That should come as no surprise when you consider that as soon as the pandemic hit, millions applied for unemployment benefits when they were forced out of the workplace.
The U.S. reported a record high unemployment rate of 14.7% — the highest number the Bureau of Labor Statistics has reported since it started tracking that data in January 1948.
And as 23.1 million were left out of work last April, many had to drain their emergency funds (if they had them) or rely on credit cards to ride out the pandemic, as nearly a quarter of consumers told CreditCards.com they had to add to their debt to get through the crisis.
What would the experts advise?
Berkshire Hathaway CEO Warren Buffett addressed the issue of credit card debt at his company’s annual meeting last year.
Buffett thinks that, although Americans love their credit cards, they’re far too expensive.
He would advise using an influx of cash like your tax refund to help clear those balances.
Meanwhile, Suze Orman has a bit more of a “necessary evil” approach when it comes to dealing with credit cards. She’s actually more concerned about the weight of student loans.
“Student loan debt is debt that you can never get rid of in most cases. So that debt is really, really important,” Orman told CNBC.
Because of that, Orman suggests tackling your student loan or other secured debts before clearing your credit cards.
Another secured debt you can consider tackling is your mortgage. Refinancing at a better rate could potentially save you a few hundred dollars a month.
Other ways to chip away at your debt
Whatever debt you’ve got on your plate, if the bills are starting to pile up and you’re having a hard time keeping up, you have some options.
Make saving your policy. If you haven’t looked around for a better deal on your auto insurance, you may be overpaying by as much as $1,100 every year. Shop around to ensure you’re getting the best possible rate. Then, apply the same approach to your homeowners insurance to ensure you save hundreds every month on that policy too.
Consolidate your debt You can also save money by rolling all of your debts into one lower-interest consolidation loan. You wouldn’t have to worry about remembering to pay multiple creditors at different interest rates.
Save big on every purchase. Even if you’re working on a tight budget, you’ll still have to occasionally stock up on the essentials. Make sure you’re always getting the best price by downloading a free browser extension that will automatically scour the web for coupons or the best deal every time you shop online.
Get cash for your clutter. If you’ve been hit hard by the itch to spring clean, why not channel your manual labor into some cold hard cash? And if you find anything in the process that’s no longer sparking joy, post it for sale on a site that offers you 33% more back than other second-hand selling sites.
Turn your pennies into a portfolio. These days, it’s easier than ever to dip your toe into the world of investing — and it doesn’t have to cost a fortune. Download a popular app that allows you to invest with your "spare change” and turn your pennies into profits.