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Consumer debt crisis

By some measures, Courtney is in a relatively strong position. She works as a public health researcher earning about $101,000 a year. She also purchased property years ago which is now worth $430,000, according to a recent appraisal.

Her early entry into the housing market and high-income give her an edge over many Americans. At the end of 2023, the median earnings for a worker with a Bachelor's degree was $1,608 a week or just over $83,000 a year, according to data from the Bureau of Labor Statistics. Meanwhile, the homeownership rate across the U.S. was 65.7%, according to the Federal Reserve.

However, the rising cost of living has driven high income, well educated people into debt. Forty-five percent of Americans earning more than $100,000 were living paycheck-to-paycheck as of November 2023, according to a report by LendingClub.

Courtney’s situation isn’t unusual, however her debt burden could be. She has $60,000 outstanding on various cards, which is much higher than the average credit card balance of $6,501 on Experian’s database.

Considering the equity built up in her home, Courtney is tempted to sign up for a cash-out refinance to pay off the cards. However, Ramsey said this wouldn't improve the situation. “You’re solving a short-term problem with a long-term solution,” he told her.

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Long-term solution

Refinancing would push Courtney’s housing costs higher. She also claimed she wouldn’t have access to a top-tier lender because of her credit score, which further complicated the situation.

Instead of refinancing, Ramsey and Delony encouraged her to steadily save up part of her monthly paychecks to pay down the credit cards over time. “You’ve treated this credit card debt like it’s cute,” Ramsey told her. “You said the only reason you’re not running up more debt is because they won’t let you, not because you got yourself under control.”

Shifting this pattern of spending could steadily reduce Courtney’s outstanding balance. Assuming she continues to earn more than $100,000 a year, Delony estimated she could eliminate the $60,000 balance within two years.

To get there, she needs a “beans and rice” budget that is focused exclusively on the essentials.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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