Survey: For Americans With Unsecured Debt, Credit Cards Mostly to Blame

A late August 2021 survey from U.S. News & World Report shows that among Americans who carry unsecured debt, more than 53% say it’s mostly from credit cards.

Credit card debt is considered unsecured debt, which means it isn’t linked to an asset, such as a house or a car. Respondents were asked what types of debt make up most of their unsecured debt, and besides credit cards they cite:

Personal loans, at almost 21%.

— Medical debt, 12%.

Payday loans, more than 5%.

About 52% of respondents say they’re carrying between $10,000 and just under $40,000 of unsecured debt.

[Read: Best Balance Transfer Credit Cards.]

What Interest Rates Are They Paying

Nearly 8% of respondents say they don’t know how much their highest interest rate is, which is concerning. Among those who do know their rates, here are the findings:

— About 35% report an interest rate of 10% or less.

— More than 20% have a rate between 11% and 15%.

— More than 19% have a rate between 16% and 20%.

— Almost 16% have a rate between 21% and 25%.

— Close to 7% have a rate between 26% and 30%.

— Nearly 4% have a rate that exceeds 30%.

Your interest rate depends on the type of debt you’re carrying as well as your creditworthiness. With debt comes interest expense. Some types of unsecured debt, such as credit cards and payday loans, charge compound interest.

This means you pay interest on a balance that includes interest charges from the previous month. With compound interest, your debt can grow quickly. Once you fall into this dangerous spiral, it’s difficult to get out.

Why Americans Struggle to Get Out of Debt

Nearly 42% of respondents say they have more unsecured debt than they did a year ago. When asked what the biggest challenges are to paying off their debt, about 20% say it is unexpected expenses.

Other findings:

— About 19% have problems paying bills on time.

— More than 15% have problems budgeting for payments.

— More than 15% cite an inconsistent income as the culprit.

— About 13% say growing interest charges are a big factor.

— More than 7% have trouble keeping track of multiple accounts.

How to Pay Off Your Debt

The first step is to identify what’s preventing you from dealing with your debt. And if you determine that you have room for improvement in several areas, that’s OK, too. Be honest about your situation, and then you can focus on one or more of these solutions:

Automate your finances.

Get a debt consolidation loan.

Apply for a balance transfer credit card.

Build an emergency fund.

Get credit counseling.

Automate Your Finances

Almost one in five respondents report not paying bills on time. If the issue is that you don’t have the money when the bill is due, you need to contact your lender and explain your situation. Depending on the lender, it’s possible to get into a hardship program while you catch up on bills.

If it’s a timing issue, see if you can change the bill’s due date. Move it to a week when you have the cash flow to cover the expense.

But what if it’s only a matter of forgetfulness? The simple solution is to automate your payments for as many bills as you can. When you set up automatic payments with your bank or a credit card, your lender deducts what you owe from your authorized bank account.

But be sure you have the funds in your bank account to cover the amount. Once you get into a rhythm and you pay your bills on time, you can start looking at solutions to help you pay less interest on your debt.

[Read: Best Debt Consolidation Loans.]

Get a Debt Consolidation Loan

Asked about how to pay off debt, about a quarter of respondents choose a debt consolidation loan as the most appealing option. With this type of loan, you consolidate your debt so it reduces your number of creditors. And hopefully, you’ll get a lower interest rate and a lower monthly payment.

You do have to do some comparison shopping online. Compare rates and make sure you get the best terms you can qualify for.

It’s important to note that it’s not a good idea to consolidate medical debt. It can add interest expense to an already unwieldy debt. Consolidating medical debt also takes away consumer protections that apply to medical debt.

For other types of unsecured debt, though, a debt consolidation loan is a good option for those who don’t have excellent credit scores. But if you do have great credit, then consider a balance transfer credit card.

Apply for a Balance Transfer Credit Card

With excellent credit, you should qualify for a balance transfer credit card. These cards often come with a 0% introductory annual percentage rate for a period of time, such as 12 to 18 months.

This gives you a chance to pay off (or at least decrease) the balance during the interest-free period. If you go this route, figure out what your monthly payment needs to be so that you have a zero balance before your regular APR kicks in.

[Read: Best Low-Interest Credit Cards.]

Build an Emergency Fund

If their debt were paid off, nearly 23% of respondents say they’d use the extra money to add to their emergency fund, which is an excellent choice. An emergency fund helps you survive a sudden financial crisis.

Even if you have debt, try to allocate some money now and then to your emergency fund. Even a little bit helps.

Get Credit Counseling

If you feel that your debt is insurmountable, reach out for help. No matter how bad your situation is, there’s a solution. It might take a long time to fix, but getting started today is the right move.

You can contact the National Foundation for Credit Counseling to find a reputable credit counseling agency.

More from U.S. News

What Is a Delinquent Credit Card Account?

Can I Get a Personal Loan With Bad Credit?

What Is a Maxed-Out Credit Card?

Survey: For Americans With Unsecured Debt, Credit Cards Mostly to Blame originally appeared on usnews.com

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