Here’s What You’ll Need To Pay Off That Big Credit Card Debt

Here's What You'll Need To Pay Off That Big Credit Card Debt

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It’s yet another example of how the economic recovery from the pandemic has been uneven: As overall credit card debt is on the decline, others are seeing their balances turn into giant numbers.

Money Management International, a nonprofit credit counseling agency, recently analyzed the credit card balances of tenants who asked them for financial assistance. Tenants have been hit particularly hard by the pandemic, and federal aid allocated by Congress to deal with their woes has been painfully slow to reach homes. More than a third of Americans are renters.

Money Management International found that the typical tenant who sought help from an agency with credit card debt in 2019 owed around $ 3,000. The average balance to date in 2021 is close to $ 25,000.

Other agencies that help people in financial difficulty make the same report.

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“We see people who have $ 20,000, $ 30,000 and $ 40,000 in credit card debt,” said Bruce McCleary, spokesperson for the National Foundation for Credit Counseling.

Experts say it can take decades to pay off the high balance.

If someone made the minimum monthly payment on a credit card with a balance of $ 25,000, charging an average annual rate of only 16.22%, it would take them about 30 years to get rid of that debt, and he won $ 32,500. would have paid more. End-to-end interest, based on an example provided by industry analyst Ted Rossman of CreditCards.com.

The minimum payment on this balance will start at around $ 588 per month and will decrease as the balance decreases over time.

One way to speed up repayments, Rossman said, would be to continue paying the principal, a higher minimum payment.

“This will bring their repayment period to just over five years,” he said. “And their interest charge would be $ 12,443.”

For those paying such a large balance, Rossman recommends contacting a nonprofit credit counselor. Money Management International, GreenPath, and the National Foundation for Credit Counseling are other options for members.

“They can provide helpful advice and negotiate with creditors on your behalf,” Rossman said.

For example, he said it’s common for people to get a more manageable payment plan, through credit counseling, “something like a 7% interest rate over five years.”

Most of the people we see have financial problems far beyond their control.

Bruce mccleary

Spokesperson for the National Foundation for Credit Counseling

Under these terms, someone who paid on the $ 25,000 balance would be debt free in five years and pay only $ 4,700 in interest.

Be prepared that some credit counselors charge a fee to help them, although those costs are usually worth it when you consider the interest they can save you from paying, experts say.

Another option for people with good credit is to take out a personal loan to pay off your credit card debt, Rossman said.

You will still be required to make monthly payments, but hopefully for a shorter period, as interest rates on personal loans can be as low as 5% or 6%, compared to a 16% or more annual fee. on credit cards.

Even those with good credit can transfer their loan to a 0% balance transfer card.

These cards give you a fixed number of months in which no interest is charged. For example, if you have one with a term of 20 months and you pay $ 1,250 per month, your $ 25,000 balance will be used up in less than two years.

“Just be aware that interest rates vary from 14.49% to 24.49% after the 0% promotion ends,” Rossmann said.

Many are waiting for an economic recovery to be able to pay off their debts in a meaningful way.

“More often than not, the people we see have financial problems far beyond our control,” McCleary said. “Much of the expense that occurs is out of necessity. “

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