2/4/2014 4:15 PM ET|
What it's like to owe $20,000 in card debt
To some, that sounds like a crazy amount of debt. Lots of Americans can relate, though. Here's a look at how they built that debt, and how they can get rid of it.
Living with $20,000 in credit card debt probably isn’t in most people’s financial plans, nor does it sound particularly enjoyable. But for many Americans, a debt load like that or even larger is an everyday reality, and chipping away at a high balance can be an overwhelming task.
The first and sometimes hardest step is to make a plan for paying it down. Still, just more than half of those with more than $20,000 in debt say it’s extremely likely they’ll be able to start paying down that debt this year, despite the fact that 61 percent said it’s extremely important they have a plan in place to do so in 2014. That’s based on the Credit.com survey Americans and Credit Card Debt, which included responses of 2,223 adults collected online from Jan. 1-9.
“Getting started is one thing, but being able to follow through with things that come up in life is another challenge,” says Gerri Detweiler, Credit.com’s director of consumer education. “You have to have a plan that takes into account the unexpected expenses that may come up in that time. Interest rates could go up, for example. Your income could change.”
Less than 5 percent of respondents to the survey (105 of them) said they had more than $20,000 in outstanding credit card debt. In fact, 44 percent said they don’t have any.
Dealing with big numbers
The weight of someone’s debt load depends on more than just a dollar figure. It’s quite possible some of the respondents with thousands of dollars of debt have the means to pay it down (15 percent said they have a manageable amount of debt), but even those struggling to fight the debt beast are capable of defeating it. With big undertakings like this, Detweiler says it can be a good idea to seek credit counseling.
The primary factors behind the large amount of debt varied greatly among this sample, but the most popular answer (26 percent) was that they used credit cards because they don’t have sufficient income to cover their expenses. Whether it was to fund a business venture, pay medical bills, get an education or indulge in shopping sprees, these people used a lot of credit cards to do it, and they realize they’ve had a debt issue for a while now.
Forty percent of this group said they have three to five credit cards (the most common response), and the next most popular amount was six to 10 cards (25 percent). Some respondents have felt that they have had too much credit card debt for more than five years.
So what’s keeping these people from getting rid of their credit card debt? Income was cited as a huge problem for this group, but other things could be hurting them more.
The survey results indicate some potential issues beyond cash flow. The majority of this group has never considered credit card or debt consolidation, credit counseling or bankruptcy, which could save them money in the long run and help them repair their finances. Even more surprising: 86 percent said they have been successful at paying down credit card debt in the past. It’s unclear exactly what that means, but it could indicate a debt cycle. Perhaps there’s a lack of awareness, too. About a third of these respondents said they think they have as much credit card debt as most Americans, but at least in this survey, they’re very much outliers on the high end of the spectrum.
The best thing these consumers can do is follow through on their intentions to start combating their debt in 2014 (and for those who said they weren’t planning on it, they should reconsider). Detweiler says some people in this situation avoid taking action out of fear of damaging their credit scores, but the age range of this group trends toward middle-age and near retirement, and if debt is keeping them from planning for the future, credit scores shouldn’t be the priority.
“It’s a significant amount of debt, and it’s probably keeping you from doing other things with your money,” she said.
You can always check your credit reports and credit scores for free — you can get your free credit reports once a year from the three major credit reporting agencies, and you can see your credit scores for free using Credit.com’s Credit Report Card. The Credit Report Card is updated once a month, and it will show how different aspects of your finances impact your scores (like high debt usage, for instance).
“It’s very doable, getting out of this kind of debt,” Detweiler says. “It usually means you’re going to have to make some tough choices about your spending. Consider reaching out to a credit counseling agency. If you don’t have some sort of plan, it’s just going to continue to grow.”
More from Credit.com
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And a recent radio ad from a mortgage company that this is the time to refinance, take some of that equity and pay off your credit card debt. Here we go again, borrow via your home, pay off those credit cards only to run them up through the roof again.
Fools never learn.
After a divorce, I ended up with a roughly $50k debt commitment, most of which in credit-card debts racked up by my former spouse. Most interest rates on those were between 20% and 29.5% due to none/late payments, so I was Royally screwed if I tried to pay that off piecemeal and from my regular income. I talked to my Credit Union and we came up with an unsecured loan over 36 Months at 9.5%. I immediately used my 'Rewards' points to pay that down to 9% and aggressively and automatically paid down the loan and applied anything that came my way towards cutting down the principal. Bonuses, garage-sale revenues, extra-jobs, Newspaper-routes. You name it, I did it and used it to pay the debt down.
Result; within 20 months, I retired the loan, clipped any credit-cards (but kept all open.) I had and am now totally debt-free with a credit-rating in the upper 700s (on all three Credit Reporting Agencies.) It was at times painful, but now and with the peace of mind of being totally debt-free; totally worth it.
“It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
- Henry Ford
Every man, woman, and child in the United States owes something like $45,000 as an individual share of the National Debt.
So everybody has the $20,000 debt feeling, whether you want to or not.
BAH HA HA HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!
Wanted a house on the waterfront. Wanted a new Corvette. Settled for a condo and a used SC430. No debt. Charge everything on Discover, pay it off every month. Receive about $400 every year as a cash back bonus. Still want the Corvette and will have enough disposable cash to outright buy it this summer. We are retired, have a good nest egg and can do what we want, within reason. Some of it is being fortunate to work in the same field and with the same company for 30 yrs. Not every one has that option. Were also fortunate with no major medical expenses or layoffs. However, the majority of this is maintaining a budget and sticking to it. Parents were raised during the depression and taught us that putting a little away each week will get us over the rough spots in life. That wisdom still holds true today.
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