Credit card debt is a growing problem in the U.S. There are several solutions, but some are certainly better than others. The right solution depends on your situation.
A recent study found repaying specific purchases instead of making the minimum balance can reduce credit card debt. Rather than asking borrowers to make payments toward their total balances, Harvard Business School Professor Michael I. Norton and colleagues tested a method that lets consumers choose which purchases to pay off each month. Consumers who used this “repayment-by-purchase” method, on average, paid 12 percent more toward their balances.
Getting rid of credit card debt is certainly challenging for many people. In the U.S., there is nearly $810 Billion worth of credit card debt in the country. Balances have been climbing. Which means the amount of household income available to repay credit cards is decreasing. in fact, the percent of household income allocated to repayment has decreased 17 percent over the last decade. Worse yet, the Federal Reserve states nearly 30 percent of consumers have reported failing to make a monthly payment. Thus, getting rid of credit card debt is becoming a challenge during COVID-19.
Options to Reduce Credit Card Debt
Norton suggests reducing credit card balances by making a payment each month equal to something you purchased in the past with the credit card. For example, if you spent $65 eating out last month, then send in $65 as your next payment instead of making the minimum payment. Many people only make the minimum payment, but it will take 20-25 years to pay off a credit card. By making payments equal to your purchases, you’ll make higher payments than your minimum payment, which will reduce the time you pay off the credit card.
There’s one problem with this approach though. As Norton found, people don’t have enough money to make the minimum payments right now because credit card balances are increasing and taking more of a person’s budget. Thus, if you can’t afford to pay more than your minimum payment, then Norton’s recommendation won’t work for you. You need another solution.
Bankruptcy is a Way to Eliminate Credit Card Debt
The best solution for someone struggling to pay their credit cards is bankruptcy. Bankruptcy is a federal law that eliminates credit card debt. This means, you don’t have to repay it. Instead, you get rid of the credit card balances and minimum payments.
Bankruptcy is a great option for eliminating debt, and most importantly, it’s federal law. You have a legal right to get out of debt. After you file bankruptcy, you can immediately rebuild your credit. Many people obtain a 700-credit score within one year of filing bankruptcy. And yes, you will get credit cards again. Just because you file bankruptcy doesn’t mean you’re forever banned from having a credit card. Initially, the credit limits will be smaller, but by using the credit card wisely, the limits will increase. Thus, you’ll have a credit card again to pay for unforeseen emergencies in life.
Call Colorado Debt Help
Stop struggling to pay your credit cards. Instead, call and schedule a free consultation with Colorado Debt Help. We’ll look at your budget and see if Norton’s strategy will help you or not. If not, we can offer other solutions like credit counseling, debt settlement, bankruptcy, and debt management plans.
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