In December 2018, U.S. consumer credit card debt hit an all-time high of $870 billion (as reported by the Federal Reserve Bank of New York). On top of this deeply shocking fact, student loan debt was also recently deemed a crisis, soaring to its highest point ever at $1.5 trillion (as of February 2019). For the millions of individuals who have made personal financial mistakes that have collectively led to these numbers, it is more crucial than ever before to begin eliminating the crushing load of debt.
Why has personal debt gotten so out of control?
Experts point to three reasons that consumer debt has reached the highest point in history. The start of the recession in 2008, the Bankruptcy Protection Act of 2005, and historically low car loan interest rates. The recession and the Bankruptcy Protection Act of 2005 led to more people leaning on their credit cards to make ends meet. Compared to a decade ago, Americans now have 52% more debt.B
But one positive from the recession is that people went back to school in order to acquire new skills, with the goal of having better job prospects. In order to achieve this goal, student loans have been available to fund their schooling. These are easier to obtain than ever before, making it effortless for many to access tens to even hundreds of thousands of dollars in loans.
Why shouldn’t individuals in debt wait to pay off their loans and credit cards?
Turning around the nation’s personal debt crisis starts at the individual level. If people continue to live with excessive debt and have no plan to pay it off, numbers are sure to rise. Now is the time to pull up your personal bank account history and assess what you can dedicate toward paying off debts. Why? In addition to the reduction and stress and financial freedom this can buy, you will ultimately save thousands of dollars over the years. One report showed that if you pay the minimum payment on a credit card balance of $6,081 at 14.99 percent interest, versus the minimum payment and an extra $100/month, you will save $2,654 by the time the card is paid off. Additionally, if you just pay the minimum payment on an average credit balance of $16,091 at 12.41 percent APR, it will take you 18 years to pay off.
Finding help to combat your own personal debt crisis
If you are one of the millions of individuals who are experiencing their own personal debt crisis, it is important to take action (rather than stress further). First, create a list of all of your debts from lowest to highest. Some experts recommend paying off the lowest balances first, while others suggest making it a priority to pay off the highest interest cards and loans. Next, decide how much extra you can put toward your minimum payments. Saving just $1 per day can help you double the minimum payments of lower-balance credit cards.
Although it will take individuals decades to recover from the current personal debt crisis, individuals can begin turning around this dire situation immediately. In addition to making a plan to pay off existing debt, it is also essential to create “rainy day” savings to avoid going into more debt.