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Two of the Scariest Words: “Past Due”

If there were a list of the two scariest words, these would be in the top 10. The pandemic added to the angst of millions of consumers who received past due notices for their falling behind in making monthly repayment obligations to the Big Three: auto, mortgage and school loans.

Surprisingly, it was credit card debt that trended downward during the pandemic, thanks to the CARES Act providing unemployment benefits and periodic stimulus checks to shelter some household finances from the storm. However, credit cards today remain as they were before – easy to obtain, tempting to use, and treacherously easy to overuse.

How Does Your Credit Card Spending Stack Up?

Americans’ average credit card balance is $5,525 — a decrease of 6% year-over-year. Take a look at the individual categories.

Baby Boomers born 1946—1964, with age ranges from 58 to 76, own the highest number of credit cards and have nearly $7,000 in individual credit card debt. 

Generation X born 1965—1980, with age ranges from 42 to 57, have the highest average credit card balance of nearly $7,236.

Millennials born 1981—1996, with age ranges from 26 to 41, have one of the highest delinquency rates of 3.2% for accounts 90 to 180 days past due.

Generation Z born 1997—2012, with age ranges from 10 to 25, have the lowest average credit card balance, at nearly $2,300, the lowest number of credit cards, and one of the highest delinquency rates across all age groups.

Americans with median annual incomes of $16,290 or less have $3,830 in average credit card debt. Conversely, Americans with median annual incomes of $290,160 or more have $12,600 in average credit card debt. American men carry more average credit card debt than women, according to Elite Personal Finance.

Is It Attributable to a ‘Money Disorder’?

Dr. Brad Klontz, with his son Dr. Ted Klontz, authored “Mind Over Money: Overcoming the Money Disorders That Threaten our Financial Life.”

As the co-founder of the Financial Psychology Institute, Dr. Brad says our problems with money aren’t necessarily our fault. Instead, they are a product of subconscious beliefs and thought patterns, rooted in our childhoods, which are so deeply ingrained in us they shape the way we deal with money our entire adult lives—but we are not powerless. In fact, most disorders are recurring and self-defeating issues that many people have with money. Money avoidance, money worshipping and relational money disorders can be broken into more specific disorders, such as overspending, pathological gambling and “workaholism,” a phrase coined in 1971 by minister and psychologist Wayne Oates, who aptly described workaholism as the compulsion or the uncontrollable need to work incessantly.

One Never Forgets How to Shop

Remember the sensation of being able to resume normal activities? Not only could you go to your favorite eateries, you could also resume shopping at your favorite stores. Basically, post-pandemic activities were like picking up where you left off before hibernation.

And once you resumed spending, did you also ask yourself what your debt reduction and repayment strategies are to pay off the debt accumulation and relieve your debt hangover?

Obviously, your goal should be to eliminate the massive headache of interest charges that can weigh you down throughout the year ahead.

For example, say your spending is just completely out of character and something you never plan to repeat again, simply go ahead and contact your credit card companies for interest rate relief while your rates remain low. 

If you’ve lost your job or are in-between jobs, discuss the car, mortgage or student loan repayment situation with those companies. Sometimes partial payments are acceptable. But the idea is you don’t leave those who loaned you money in the dark.

Pay Yourself Before You Pay Your Debts

“Earmark 10 percent of your pay toward your savings and 10 percent toward your debt with no interruptions,” said Erin Weber, a CERTIFIED FINANCIAL PLANNER™ practitioner and a Certified Personal Finance Counselor® with the Weber Group at Hefren-Tillotson.

Weber’s tips to overcome debt appeared in the March 2021 blog, “Five Simple Ways to Reduce Debt,” published here. 

  1. Start budgeting. You must have a good financial picture when trying to reduce your debt. And remember, budgeting is not an overnight process 
  2. Pay more than the minimum on your debt. Pay down your most expensive debt first. Credit card is more expensive than your student loan or house payment
  3. Stop creating more debt. Cut back on your spending. Eat at home instead of going out to expensive restaurants and you’ll be amazed at how much you’ll save
  4. Try to earn extra income. Sell unwanted items that are in your home, do odd jobs, earn money from doing what you’re good at, but perhaps didn’t do for a living
  5. Downsize where you live. Times have changed. When we live above our means, it puts us further into debt. Selling your home removes a house payment

 “The coronavirus pandemic proved to us that we don’t need to go to the grocery store three times a week or order out for food twice a week. We can cut back. We did cut back. We learned how to cut back—and how to work out at home,” said Weber. 

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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