Many Americans are in debt. In the second quarter of 2021, consumer debt in America reached a new high, totaling $14.96 trillion dollars.1 The average debt balance for individual consumers in America reached almost $93,000 in 2020.2 This debt balance included mortgages, auto loans, student loans, personal loans, home equity loans and credit card debt. Few age groups are spared this debt burden.
Know your debt relief options by speaking to a bankruptcy attorney before your debt becomes too overwhelming.
How Debt Affects Different Age Groups
Young people aged 18-23 experienced the largest growth in debt with an increase in debt of 67.2 percent from 2019 to 2020 and those age 24-39 saw the next highest increase at 11.5 percent.3 Generation X, those age 40-55, actually carried the largest average debt in 2020 at $140,643, followed by Baby boomers (age 56-74) who had an average of $97,290 in debt. Even those 75+ carried average debt in the amount of $41,281.
While we would all like to own everything free and clear, that just isn’t possible for most Americans. Debt, however, can be managed, giving the debt holder peace of mind that they will be free of debt at some point in their lives. Reducing or eliminating debt is not easy, but it is doable. You can start by implementing the following tips.
Tip #1 – List Your Debt
Before you can tackle the problem, you have to have a good idea of the scope of the problem. That’s why it is important to put down on paper who you owe, how much you owe, payment due dates, interest rates charged and the minimum monthly payment required.
Tip #2 – List Your Income and Expenses
Write down all of your sources of income, from wages to pensions to alimony and child support. Then write down how much you spend on bills each month (rent, utilities, gas for your car, groceries, medications, etc.). For bills such as utilities that may vary in cost from season to season you may want to take what you have paid for each of the last 12 months and divide it by 12 to get an average cost per month.
Look at where your money is going each month and determine if there are any areas where you can cut expenses (such as eating out, gym memberships or entertainment expenses).
Tip #3 – Determine How Much You Can Put Toward Debt Payments
Once you have a good handle on your expenses, deduct the expense amount from your income. The balance is the money that should go toward paying down your debt each month. Making the minimum monthly payments is more costly and takes far longer to pay off debt than putting even a modest amount of money toward your debt over and above the minimum required monthly payment. If you have a $15,000 credit card balance at 17 percent APR with a $450 minimum payment, paying just $100 more per month more would pay off the card in three years and save you $1,400 in interest.4 To calculate your own savings, Bankrate provides a no-cost credit card pay-off calculator 5.
Tip #4 – Seek Professional Help if Expenses Exceed Income
If you find that your expenses exceed your income, it is time to seek professional help. A bankruptcy attorney can help you analyze your situation and recommend next steps, which usually includes credit counseling and serious consideration of personal bankruptcy protection. Seeking professional help before your situation becomes critical provides more options and gives you the peace of mind that only an experienced professional can provide.
Tip #5 – Use “Extra” Money to Pay Down Debt
Sometimes we get money we didn’t count on, such as a raise at work, a refund of income tax paid, or an inheritance. Resist the temptation to take a vacation or buy something you want. Instead, use that “extra” money to pay down your debt.
Tip #6 – Choose What Debt to Pay Off First
There are two methods recommended by financial experts to pay off debt. The first is paying off your smallest balance first and then moving on to the next smallest balance, and the second is to pay off the balance with the highest interest rate first.6
By paying off the debt with the smallest balance and then moving on to the next debt with the smallest balance you get a feeling of accomplishment which helps motivate you to continue paying off debt. However, if you have payday loan, a title loan or any other debt with a high interest rate such as 300-400 percent APR, paying off your smallest debt balance first isn’t a good idea. Focus instead on paying off the high interest rate debt first which will save you more money long term.
Tip #7 – Refinance Your Debt at a Lower Interest Rate
Periodically check the interest rates on the type of debt you hold. You can save literally thousands of dollars in interest and decrease your payments by refinancing your mortgage, auto loan, personal loam or student loan at a lower rate. Credit card interest and payments can also be lowered by judiciously using a balance transfer with no interest for a set period of time, usually between six and eighteen months. A debt consolidation loan may also be an option.
Personal Bankruptcy Options
These tips are helpful and sound, however their effectiveness may depend on your circumstances. Don’t let your debt control your life and affect your mental and physical well being. The bankruptcy attorneys at Hines Law have been helping residents throughout Massachusetts with debt relief options for 20 years. Our bankruptcy firm is full-service specializing in Chapter 7 and Chapter 13 and has the knowledge, compassion, and expertise to help debtors with the right solution to gain control of their finances. Call and speak with a bankruptcy attorney today, Free.
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1 Quarterly Report on Household Debt and Credit, Federal Reserve Bank of New York, released August 2021
Link: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2021Q2.pdf
2, 3 Average U.S. Consumer Debt Reaches New Record in 2020 by Stefan Lembo Stolba, 4/6/2021
Link: https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/
4 5 Ways to Get Out of Debt by Zina Kumok, 12/23/2020
Link: https://www.bankrate.com/personal-finance/debt/ways-to-get-out-of-debt/
5 Credit Card Payoff Calculator
Link: https://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx
6 Average American Debt 2021 by Kim Porer, 9/17/2021
Link: https://www.bankrate.com/personal-finance/debt/average-american-debt/