US Credit Card Debt Sets New Record—But Is That a Problem?

Toy car and calculator on the table.

US consumers broke through quite a barrier earlier this year, when total credit card debt topped $1 trillion for the first time since the Great Recession. Then in June, total credit card debt reached $1.021 trillion, besting the previous record set back in April 2008, just as the Great Recession began.

There’s a natural impulse to see this as a bad sign: the last time credit card debt hit $1 trillion, things didn’t end so well. High revolving-debt levels can be an indication that consumers are struggling to make ends meet or that their incomes aren’t keeping up with expenses. It can also indicate that lenders are giving away credit too easily.

Or, it might mean that economic activity is increasing and consumers are optimistic about the future.

Underlying data suggest a bit of both. Read on to learn more about the good and bad, as well as where there may be reason for concern.

The Good: Responsible Consumers Are Building Credit

The credit card debt record isn’t a surprise to people who have been following the industry. In May, TransUnion revealed that access to credit cards had reached its highest level since 2005: a total of 171 million consumers had access to a card, the credit bureau said. Meanwhile, credit limits for the best credit card customers—those with particularly high (or super-prime) credit scores—have also risen quickly; the average total credit line for super-prime consumers rose from $29,176 in 2010 to $33,371 earlier this year. More cards and higher credit limits lead to more spending and more borrowing—and the new debt record.

“The card market went through a transformation after the recession as more lenders opened up access to subprime and near-prime consumers. The competition for super-prime consumers has become fierce, and we are seeing it manifest in higher total credit lines,” said Paul Siegfried, senior vice president and credit card business leader for TransUnion.

The American Bankers Association (ABA) released similar data in late July. It found that the number of new accounts had increased by 8.8% in Q1 compared with the same period the previous year.

“A stronger labor market continues to serve as a bright spot in the US economy, putting more Americans in a better position to establish and build credit,” according to Executive Director of ABA’s Card Policy Council Jess Sharp.

More consumers with access to more credit is generally a good thing. It’s hard to be a US consumer—to rent a car, to book a hotel, and so on—without access to credit cards.

But within these reports lurk some ominous signs.

The Bad: Subprime Card Holder Numbers Are Growing Fast

Subprime credit consumers are the fastest-growing segment of the credit card market, TransUnion found. There are now 2.3 million more subprime credit card holders than there were in early 2015. The growth rate for subprime card holders was 8.9%—much higher than the 2.6% rate of all other consumers. And the ABA found that the average size of initial credit lines being granted to new subprime borrowers was growing at a faster rate than all other categories.

In other words, the increase in card debt might be the result of this fast-growing subprime borrower market.

Credit card delinquency rates are also growing—from 1.50% in 2016’s first quarter to 1.69% in 2017’s first quarter. TransUnion attributes this to the increase in subprime card users but also notes that it wasn’t unexpected.

“The recent surge in subprime cards has contributed to an increase in the card delinquency rate at the start of the year, but from a pre-recession, historical perspective, we are still at low levels of delinquency,” Siegfried said.

That was little comfort to investors earlier this year, when both Discover and Capital One announced a surprise increase in defaults. Shares of both fell about 3% in one day on “here we go again” fears.

The Larger Context: Credit Debt Doesn’t Exist in a Vacuum

All this is happening with the backdrop of recent concerns about the suddenly slumping auto sales market. A huge increase in subprime car loans helped fuel record auto sales in the past several years, but rising delinquencies have contributed to an alarming slowdown in overall auto sales—and loose comparisons to the subprime mortgage bubble that fueled the Great Recession.

However, it’s far too early to suggest that subprime credit card lending is a sign of trouble, let alone big trouble. Credit card debt is easy to misinterpret because those numbers are meaningless without context. A consumer who charges $6,000 and pays that balance off each month is much better off than one who charges $1,500 and struggles to make minimum payments.

It’s important to remember that the majority of Americans don’t carry a credit card balance from month to month. The ABA says 28.8% of account holders pay their balance in full each month (the so-called “transactors” in the image below), and another 27.2% don’t use their cards at all. The remaining category is the one to watch: the “revolvers,” who carry a balance and often pay high rates. Currently, 44% of card holders carry a balance each month. Their ranks rose 0.3% in the most recently reported quarter, while the share of transactors fell by 0.3%.

So that’s a number to watch—much more important than average balances or total credit card debt. If more people can’t pay their whole credit card bill every month, there’s a real problem brewing. And while that group has increased slightly, it’s still below the recession peak.

Perhaps the most positive finding from the ABA report is that outstanding credit card debt as a share of consumer disposable income isn’t climbing. In fact, it fell by a small fraction, to 5.3%. That’s a good indicator that consumers aren’t struggling to pay their credit card bills or increasing their plastic spending at a rate faster than their incomes are growing.

Protect Yourself from Whatever the Market May Hold

So the new record credit card debt is truly a mixed signal. With subprime lending and defaults up, auto loans in a bit of trouble, and some investors worried, this milestone is a good time to pause and evaluate whether America is once again heading down the road of too-easy credit followed by recession. But by itself, $1.02 trillion is just a number, and it might not indicate anything.

Either way, it’s a good idea to stay on top of your credit report—which you can check for free at Credit.com—to ensure you’re in a good place, regardless of what the coming years might bring.

Image: istock

The post US Credit Card Debt Sets New Record—But Is That a Problem? appeared first on Credit.com.

Average Household Credit Card Debt in America: 2017 Statistics

Even as household income and employment rates are ticking up in the U.S., credit card balances are approaching all-time highs. What’s behind the growth of credit card spending among consumers? In a new report on credit card debt in America, MagnifyMoney analyzed credit debt trends in the U.S. to find out exactly how much credit debt consumers are really taking on and, crucially, how they are managing their growing reliance on plastic.

Key Insights:

  • While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. As of December 2016, households with credit card debt owed an average of $8,158, down 22.9 percent compared to October 2008, when household credit card debt peaked at $10,588.
  • Credit card balances and credit card debt are not the same thing. The 73 million Americans who pay their bill in full each month have credit card balances reported to the major credit reporting bureaus.
  • Assessing financial health means focusing on credit card debt trends rather than credit card use trends.

Credit Card Debt in the U.S. by the Numbers

Credit Card Use

Number of Americans who use credit cards: 201 million1

Average number of credit cards per consumer: 2.32

Number of Americans who carry credit card debt: 125 million3

Credit Card Debt

The following figures only include the credit card balances of those who carry credit card debt from month to month.

Total credit card debt in the U.S.: $527 billion4

Average credit card debt per person: $4,2055

Average credit card debt per household: $8,1586

Credit Card Balances

The following figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

Total credit card balances: $784 billion as of January 2017, an increase of 7.4 percent from the previous year.7

Average balance per person: $3,9058

Who Pays Off Their Credit Card Bills?

42 percent of households pay off their credit card bills in full each month

31 percent of households carry a balance all year

27 percent of households sometimes carry a balance10

Understanding Household Credit Card Balances vs. Household Debt

At first glance, it may seem that Americans are taking on near record levels of credit debt. Forty-two percent of American households11 carry credit card debt from month to month, and, if you look at the total credit card balances among U.S. households, the figure appears astronomical — $784 billion. But that figure includes households that are paying their credit debt in full each month as well as those that are carrying a balance from month to month.

While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. The total of credit card balances for households that actually carry debt from month to month is $527 billion.

As of the second quarter of 2017, households with credit card debt owed an average of $8,158.3 That is a decrease of 22.9 percent compared to October 2008, when household credit card debt peaked at $10,588.12b

And as household incomes have risen in recent years, this has helped to lower the ratio of credit card debt to income. Today, indebted households with average debt and median household incomes have a credit card debt to income ratio of 14.4 percent.13 Back in 2008, the ratio was 19.1 percent.

Per Person Credit Card Debt

Once we adjust for these effects, we see that an estimated 125 million Americans carry $527 billion of credit card debt from month to month. Back in 2008, 5 million fewer Americans carried debt, but total credit card debt in late 2008 hovered around $631 billion.16 That means people with credit card debt in 2008 had more debt than people with credit card debt today.

Average credit card debt among those who carry a balance today is $4,205 per person2 or $8,158 per household.3 Back in 2008, credit card debtors owed an average of 23.7 percent more than they do today. In late 2008, the 115 million17 Americans with credit card debt owed an average of $5,567 per person12a or $10,689 per household.12b

Delinquency Rates

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

In the second quarter of 2010, serious delinquency rates on credit cards were 13.74 percent of all balances owed, nearly twice as what they are today. Today, credit card delinquency rates are down to 7.38 percent.14

Our Method of Calculating Household Credit Card Debt

Credit card debt doesn’t appear on the precipice of disaster, but the recent growth in balances is cause for some concern. Still, our estimates for household credit card debt remain modest.

In fact, MagnifyMoney’s estimates of household credit card debt is two-thirds that of other leading financial journals. Why are our estimates comparatively low?

A common estimate of household credit card debt is:

This method overstates credit card debt. The Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) does not release a figure called credit card indebtedness. Instead, they release a figure on national credit card balances. Representatives of the Federal Reserve Bank of New York and the Philadelphia Federal Reserve Bank both confirmed that the CCP includes the statement balances of people who go on to pay their bill in full each month.

To find a better estimate of credit card debt, we found methods to exclude the statement balances of full paying households from our credit card debt estimates. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Even though full payers pay off their statement balance each month, their balances are included in the CCP’s figures on credit card balances.

To exclude full payer balances, we turned to academic research outside of the Federal Reserve Banks. The paper, Minimum Payments and Debt Paydown in Consumer Credit Cards, by Benjamin J. Keys and Jialan Wang, found full payers had mean statement balances of $3,412. We used this figure, multiplied by the estimated number of full payers to find the statement balances of full payers.

Our credit card debt estimate is:3

Credit Card Debt: Do We Know What We Owe?

Academic papers, consumer finance surveys, and the CCP each use different methods to measure average credit card debt among credit card revolvers. Since methodologies vary, credit card debt statistics vary based on the source consulted.

MagnifyMoney surveyed these sources to present a range of credit card debt statistics.

Are We Paying Down Credit Card Debt?

A Pew Research Center study25 showed that Americans have an uneasy relationship with credit card debt. More than two-thirds (68 percent) of Americans believe that loans and credit card debt expanded their opportunities. And 85 percent believe that Americans use debt to live beyond their means.

Academic research shows the conflicting attitude is justified. Some credit card users aggressively pay off debt. Others pay off their bill in full each month.

However, a substantial minority (44 percent)26 of revolvers pay within $50 of their minimum payment. Minimum payers are at a high risk of carrying unsustainable credit card balances with high interest.

In fact, 14 percent of consumers have credit card balances above $10,000.27 At current rates, consumers with balances of $10,000 will spend more than $1,400 per year on interest charges alone.28

Even an average revolver will spend between $58130 and $59731 on credit card interest each year.

Credit Debt Burden by Income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the Survey of Consumer Finances, the top 10 percent of income earners who carried credit card debt had nearly twice as much debt as average.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $3,000. However, their debt-to-income ratio was 21.7 percent. On the high end, earners in the top decile had an average of $11,200 in credit card debt. But debt-to-income ratio was just 4.9 percent.

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower income debt carriers. In fact, high-income earners are as likely to pay the minimum as those with below average incomes.32 If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational Differences in Credit Card Use

  • Boomer consumers carry an average credit card balance of $6,889.
  • That is 24.1 percent higher than the national average consumer credit card balance.34
  • Millennial consumers carry an average credit card balance of $3,542.
  • That is 36.1 percent lower than the median consumer credit card balance.35

With average credit card balances of $6,889, baby boomers have the highest average credit card balance of any generation. Generation X follows close behind with average balances of $6,866.

At the other end of the spectrum, millennials, who are often characterized as frivolous spenders who are too quick to take on debt, have the lowest credit card balances. Their median balance clocks in at $3,542, 36.1 percent less than the national median.

Better Consumer Behavior Driving Bank Profitability

You may think that lower balances spell bad news for banks, but that isn’t the case. Credit card lending is more profitable than ever thanks to steadily declining credit card delinquency. Credit card delinquency is near an all-time low 2.34 percent.14

Despite better borrowing behavior, banks have held interest on credit cards steady between 13% and 14%37 since 2010. Today, interest rates on credit accounts (assessed interest) is 14%. This means bank profits on credit cards are at all-time highs. In 2015, banks earned over $102 billion dollars from credit card interest and fees.38 This is 15 percent more than banks earned in 2010.

How Does Your State Compare?

Using data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare median credit card balances and credit card delinquency. You can even see how each generation in your state compares to the national median.

Median Credit Card Balance by Age (All Consumers) by State

Footnotes:

  1. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”

    The October 2016 Survey of Consumer Expectations shows 75.02 percent of people with credit reports had balances on credit cards. The August 2017 Report on Household Debt and Credit showed 268 million adults with credit reports. For a total of 201 million credit card users.

  2. August 2017 Report on Household Debt and Credit , Page 4, Q1 2017, 453 million credit card accounts. 459 million credit card accounts / 201 million credit card users1 = 2.3 credit cards per person.
  3. The 2015 Report on the Economic Well-Being of U.S. Households reports 58 percent of credit card users carried a balance in 2015. 201 million1 * 58% = 116 million people with credit card debt.

    Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67 percent of credit card users were not “full payers.” This results in a high estimate of 135 million people with credit card debt.

    Average estimate is 125 million with credit card debt.

  4. Using data from the 2015 Report on the Economic Well-Being of U.S. Households, 201 million credit card users * (58 percent not full payers) * $4,262 per individual5 = $496 billion in credit card debt.

    Using data from Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate 201 million credit card users * (67 percent not full payers) * $4,148 per individual5 = $558 billion in credit card debt.

    Average estimated total credit card debt is $527 billion.

  5. The August 2017 Report on Household Debt and Credit shows $784 billion in outstanding credit card debt. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    [$784 billion – ($3,412 (full payer balance) * 33% full payer * 201 million credit card users1)] / (201 million credit card users * (100% – 33% not full payers)) = $4,148

    Using their estimate of 42 percent full payers, from the 2015 Report on the Economic Well-Being of U.S. Households and the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    [$784 billion – ($3,412 (full payer balance) * 42% full payer * 201 million credit card users1)] / (201 million credit card users * (100% – 42% not full payers)) = $4,262

    Average estimated credit card debt per person is $4,205.

  6. Average per person credit card is $4,2055 and the average household contains 1.94 adults over the age of 18. $4,205 * 1.94 = $8,158.
  7. August 2017 Report on Household Debt and Credit, Compare Q2 2016 to Q2 2017, outstanding credit card debt (Page 3).
  8. August 2017 Report on Household Debt and Credit, Page 3, Q2 2017, credit card debt $784 billion / 201 million1 = $3,905.
  9. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. National Balance on Bankcards — average of $5,551.
  10. Page 30, 2015 Report on the Economic Well-Being of U.S. Households.
  11. 2013 Survey of Consumer Finances reports 37.1 percent of U.S. households carry credit card debt. There are 125.82 million U.S. households.

    Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1 percent of U.S. households carried a balance the month prior to the Survey of Consumer Finances.

    Between 48 million14 and 58 million15 households carry credit card debt. Using the average of the two estimates, we believe 53 million households out of 125.82 million households carry credit card debt.

  12. a. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit showed 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.

    The August 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    [$866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users)] / (183 million credit card users * (100% – 33% not full payers)) = $5,365

    U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5 percent of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    [$866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports)] / (240 million people with credit reports * (44.5% not full payers)) = $5,769

    Average estimated credit card debt per person is $5,567.

    b. Average per person credit card is $5,56712a and in 2008, the average household contained 1.92 adults over the age of 18. $5,567 * 1.92 = $10,689.

  13. U.S. Bureau of the Census, Real Median Household Income in the United States [MEHOINUSA672N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSA672N, September 6, 2017.
  14. August 2017 Report on Household Debt and Credit , Page 12, % of Total Balance 90+ Days Delinquent, Credit Cards
  15. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Full payers will pay off the entirety of their statement balance each month. Finding an estimate of full payers” statement balances was not an easy task. The Federal Reserve Bank of New York does not provide estimates of full payers compared to people who carry a balance.

    In order to get our estimates, we turned to academic research outside of the Federal Reserve Banks. In the paper, Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we found robust estimates of the statement balances of “full payers.” According to their analysis (see Table 1-A), full payers had mean statement balances of $3,412 (when summarized across all credit cards) before they went on to pay off the debt.

    We multiplied $3,412 by the estimated number of full payers to get the estimated balances of full payers.

  16. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.

    The May 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    $866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users) = $659 billion

    U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5 percent of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    $866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports) = $587 billion

    Estimated credit card debt is $623 billion.

  17. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”

    The October 2016 Survey of Consumer Expectations Shows 75.02 percent of the adult population uses credit cards. The August 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 201 million credit card users. Page 30, 2015 Report on the Economic Well-Being of U.S. Households shows that 58 percent of households with credit cards sometimes or always carry a balance.

    201 million * 58% = 116 million people with credit card debt

  18. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”

    The October 2016 Survey of Consumer Expectations Shows 75.02 percent of the adult population uses credit cards. The August 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 201 million credit card users. Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67 percent of credit card users were not “full payers.”

    201 million * 67% = 135 million people with credit card debt

  19. The 2013 Survey of Consumer Finances reports 37.1 percent of U.S. households carry credit card debt. There are 125.82 million U.S. households.
  20. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1 percent of U.S. households carried a balance the month prior to the Survey of Consumer Finances.
  21. The 2013 Survey of Consumer Finances reports a median credit card debt of $2,300 per household with credit card debt.
  22. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic median credit card debt of $3,500 per household. Two-person households systematically underreported their debt.
  23. The 2013 Survey of Consumer Finances reports a median credit card debt of $5,700 per household with credit card debt.
  24. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic average credit card debt of $9,600 per household.
  25. The Complex Story of American Debt, Page 9.
  26. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  27. Recent Developments in Consumer Credit Card Borrowing.
  28. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, September 7, 2017.

    May 2017 interest rate on accounts assessed interest 14%: $10,000 * 14% = $1,400.

  29. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  30. $4,1482 * 14%28 = $581
  31. $4,2622 * 14%28 = $597
  32. Minimum Payments and Debt Paydown in Consumer Credit Cards.
  33. 2013 Survey of Consumer Finances.
  34. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. Average credit card balance for baby boomers is $6,889 compared to a national average of $5,551.
  35. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. Average credit card balance for millennials is $3,542 compared to a national average of $5,551.
  36. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, September 7, 2017.
  37. U.S. Bureau of the Census, Sources of Revenue: Credit Card Income from Consumers for Credit Intermediation and Related Activities, All Establishments, Employer Firms [REVCICEF522ALLEST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/REVCICEF522ALLEST, September 7, 2017.
  38. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.

    The May 2017 Report on Household Debt and Credit, Page 3, Q3 2008, credit card debt $886 billion / 183 million = $4,720

  39. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017. All average credit card debt balances are calculated using the following formula:

    (Total Credit Card Balancea – Balance of Population Not Carrying Debtb) / Population Carrying Credit Card Debtc

    1. Total Credit Card Balance = (Average Credit Card Debt Per Capita * Population)
    2. Balance of Population Not Carrying Debt = Average Credit Card Debt Per Capita * Population * % of Population Using a Credit Card
    3. Population * % of Population Using a Credit Card * (1 – .375)
  40. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017.
  41. Data from Consumer Credit Explorer.

The post Average Household Credit Card Debt in America: 2017 Statistics appeared first on MagnifyMoney.

How a Balance Transfer Affects Your Credit Score

Paying no interest can save you a ton of money, but can applying for and getting a balance transfer credit card hurt your credit?

If you’re struggling with credit card debt that you just can’t seem to get out from under, one of the best ways to break free from that debt is to use a 0% balance transfer card. Doing so saves you money in the long run since you won’t be paying interest charges while you work on paying down that balance.

What You Need to Know

First, applying for a new credit card of any kind can end up dinging your credit just a little. That’s because credit card issuers do what’s known as a “hard inquiry” to determine if you qualify for their product. That check of your credit can have a small and temporary effect on your credit scores, but it’s typically more than offset when you’re approved for the new card because your credit utilization improves with the new line of credit. And as soon as you start whittling away at your outstanding debt with your new balance transfer card, your credit is likely to improve even more. (If you don’t know where your credit currently stands, you can get your two free credit scores, updated every 14 days, on Credit.com.)

The five big factors in determining your credit score include your credit utilization, payment history, types of credit, credit inquiries and the age of your accounts. Here’s an explanation of each and how they are potentially affected when you apply for and use a balance transfer credit card:

The 5 Components of Your Credit Score

1. Credit Utilization
What it Is: This is basically the amount your currently owe on your revolving credit accounts, and makes up 30% of your total score. If you keep your balances to less than a 30% of your limit, and preferably 10%, you’ll be doing your credit scores a huge favor.
How it’s Affected: Suppose you owe $10,000 on Card A, which has a limit of $12,000. You’re using 83% of your available credit. But now you open Card B and move all $10,000 onto it (it has a limit of $10,000). You are now using a total combined available credit of 45% (a combined $22,000 on both cards). The new lower credit utilization could help boost your credit score.

2. Payment History
What it Is: This is the most important part of your credit scores and counts for 35% of your total. That’s why it’s so important to make your payments on time and avoid having your accounts go into collections at all costs.
How it’s Affected: If you made regular, on-time payments on the old card, and continue to make regular, on-time payments on the new card, you shouldn’t see any change here.

3. Types of Credit
What it Is: This is worth 10% of your score and in this area, diversity is key, so having a good mix of credit cards, auto loans, mortgage loans and even personal loans will help give you a good score.
How it’s Affected: Since you probably already have a credit card if you’re looking to transfer a balance to a new card, you likely won’t see much, if any, difference here.

4. Credit Inquiries.
What it Is: This area makes up 10% of your credit scores. Too many credit inquires at the same time can drop your score.
How it’s Affected: Applying for a new card will put an inquiry on your credit. As long as you’re not applying for multiple cards, a single inquiry will have a very small effect.  Probably only dropping your score by less than 5 points.

5. Age of Credit
What it Is: The longer you have been responsibly using credit, the better your score in this area. It accounts for 15% of your total score.
How it’s Affected: Once you get your new card, hang on to your old one. Don’t cancel it. Here’s why: You want to keep your oldest cards open so that your active credit has as long a history as possible. Plus, if you close the old card, you won’t get the benefit of a score boost in your credit utilization, as explained above.

Your Credit & Balance Transfer Cards: The Bottom Line

Opening a new account and transferring the balance over should save you money in the long run, and have a positive impact on your credit score — so long as you don’t transfer your old balance and then turn right away and charge up a new one. Don’t expect a huge jump at the very beginning, but as you continue to pay down your balance by making timely payments, you should see some incremental improvement.

But is a balance transfer right for you? There’s no one-size-fits-all answer here. It depends on the size of your debt, the interest rate, your income, your current credit score, and how soon you think you can wipe out your debt.

Some of the credit cards with the longest 0% introductory APR offers on balance transfers include:

  • The Citi Diamond Preferred leads the pack with 21 months interest-free financing for balance transfers and purchases. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.)
  • The Discover it card, also offers 21 months interest-free financing on balance transfers and six months for purchases
  • The Citi Double Cash card offers 18 months interest-free financing on balance transfers
  • The Chase Slate card offers 15 months interest-free financing, plus no transfer fee if you transfer your balance within 60 days of approval

One consideration is whether you can pay off your debt during the 0% introductory APR period. If you feel your debt is too big to pay off in 15, 18 or even 21 months or you’re worried about running up a balance on both cards, you could consider taking out a personal loan to pay it off. You won’t get the 0% interest offer, but you will likely get a significantly lower overall interest rate than the credit card will offer after the introductory period ends and you’ll have a set date that your debt will be paid off by. (You can learn more about getting an unsecured personal loan here.)

Whatever decision you make, you can rest assured that applying for an using a balance transfer credit card won’t severely damage your credit so long as it used it as intended. And, if used properly, there’s a very good chance your credit score will improve.

At publishing time, the Citi Diamond Preferred, Discover it, Citi Double Cash and Chase Slate credit cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for these cards. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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5 Signs You’re Not Ready to Be a Stay-at-Home Parent

It's a big decision to stay home after having a baby — but doing so isn't an option that is right for every mother.

Sometimes new mothers have a hard time deciding if they want to return to work after their baby is born, especially after bonding with their child during maternity leave. Sometimes there is no choice — like if you’re a single parent or your family can’t afford to live solely on your partner’s salary — and there’s not much left to do but head back to the office.

Women who have the option to stay home with a baby may have trouble weighing the pros and cons. As hard as it is to decide, there might be some fairly obvious signs that you’re actually not ready to be a stay-at-home mom. Of course, these tip offs apply to all those prospective stay-at-home dads, too.

Here are a few signs you’re not ready to be a stay-at-home parent.

1. You Have a Budget But Don’t Follow It 

Having a budget is one thing, but following it is something entirely different. Just because it looks like you have your finances under control on paper, if your credit card statements tell a different story, you might need to reconsider staying home, at least until you can get your spending under control. (Curious how your credit card debt is affecting your credit? You can see a free snapshot of your credit report here.)

Having a baby is bound to bring in even more expenses (according to the Department of Agriculture, the current cost of raising a child through age 17 is a whopping $233,610), so if you already have trouble following a budget — or you haven’t updated your budget yet to include everything your baby will need — you may want to consider seeing what following an updated budget would be like for at least a month before deciding if you can afford to live on one salary.

2. You Haven’t Saved for Retirement Yet/You Have No Retirement Savings Plan if You Quit

It’s no secret that Americans are worried about retirement. In fact, one recent survey found that 56% of Americans lose sleep over saving for retirement, while another found that 38% of millennials find retirement to be a significant financial stressor. Even if you have started saving but it’s been a few years since you’ve checked in on your progress, it may be time for a bump in how much you put away … something that will be much more difficult to do if you decide to leave your job.

Of course parents who decide to stay at home do have options when it comes to retirement (spousal IRAs, self-employed retirement funds and rollover accounts, to name a few). But if you don’t qualify for them, don’t care to look into them or can’t afford to put anything else away if you leave your job, it’s probably best to reconsider leaving until you can. You can read this guide to learn more about IRAs.

3. Your Partner’s Health Insurance Options for You & Your Baby Are Subpar at Best

While the future of healthcare is a little shaky right now, there’s one thing you can safely assume no matter what happens — you and your baby will need some. Newborns spend the first six months of their lives visiting a pediatrician at least once a month (often much more frequently in their first few weeks), and new moms, in particular, will have plenty of check-ups with their OB as well. These aren’t things you’ll want to do without health insurance, so if your partner’s options for you and your child don’t stack up, staying on yours until something better comes along is a good idea.

4. Your Emergency Savings Account Is Minimal

You might think having three months worth of bills covered in an emergency account is great — and it is — but it might not be enough if you’re considering leaving your job. Experts recommend having at least three to six months’ worth of bills covered in an emergency savings account, and that doesn’t really take into account all the extras that come along with having a baby. If you’ll be moving into a house from an apartment for more space, assume that you’ll have random projects pop up that will start draining that emergency fund quickly. If your partner can afford to keep funding the account to cover for any withdrawals you take or to provide you with more of a cushion that’s one thing, but if the account has been stagnant for a while and your family can’t afford to put anything else away right now, maybe a better idea is to stay at your job and slowly build up the emergency account a bit more so that when/if the time comes that you leave your job, you’ll feel more secure knowing your emergency funds are all there.

(And, if you don’t have a savings account at all, you’ll want to start socking away dollars ASAP. No need to panic, though: This piece will help you create an emergency fund in 30 days or less.)

5. You Struggle Spending All Day Alone with the Baby During Work Leave

Let’s be honest — babies are tough to take care of. So if you find it difficult to stay positive while on maternity or paternity leave, that might be a sign that you’re not quite ready stay home full time with a baby. Working is about a lot more than just a paycheck — it’s about having some time to yourself (funny how commutes suddenly become a wonderful thing) and with other adults, and it’s about having a job to do that both stimulates and fulfills you. If you don’t think staying at home with a baby will do all of those things for you, it’s probably best for you, and your family, if you head back to work.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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5 Things to Think Twice About Putting on Your Credit Card

Want to keep your credit card debt in check? Avoid charging these five things.

Credit cards are useful financial tools. They can fund large purchases, build credit and help consumers establish financial independence. But they can also get cardholders into major financial trouble when used improperly. Not all credit card purchases are created equal, and some should be completely sidestepped to avoid unmanageable credit card debt.

Not only can that debt stress you out, it can hurt your credit scores, which can limit your ability to get future credit for things like a mortgage or an auto loan. You can see how your current debt is impacting your credit using our free credit report summary. It provides you with two of your credit scores, completely free and updated every 14 days, plus a summary of how you’re managing your credit in five key areas.

Here are five ways you probably don’t want to use your credit card if you want to be better equipped to manage your credit card balance.

1. Pay Monthly Utilities

Paying monthly utility bills may be especially appealing to cardholders with rewards credit cards — after all, those bills are another way to maximize rewards. In that scenario, it could make sense to pay your bills using a credit card.

But many companies charge convenience fees to pay with a credit card, so you’ll end up paying more than necessary. If you can’t pay off the bill balance in full each month, you could end up paying a lot in interest charges. As interest accrues and your bills continue to stack up, it could become very easy to fall far behind.

If you’re having trouble paying your bills, you might be better off reducing your spending or working with your service providers to come up with an alternative payment plan.

2. Pay College Tuition

There are many ways to pay for college. Student loans, scholarships and part-time jobs can all fund your education. These options are either free or far cheaper than using a credit card. If you wince at the idea of taking out a student loan, remember that a loan will come with much lower interest than a credit card payment. What’s more, most student loans are deferred until after graduation, while you will making monthly payments on your credit card debt almost immediately.

3. Settle Tax Debt

If you find yourself with an unexpected debt to the IRS, it could be tempting simply to charge it. This is usually a bad call.

Paying the IRS with a credit card may result in a convenience fee, and unless you can pay off the balance immediately, you’ll wind up paying interest on that debt quickly. The IRS offers a number of solutions for taxpayers with substantial tax debt, including repayment programs and settlements for less than the original amount owed.

4. Take Out Cash Advances

Cash advances let you take out cash against your credit card balance, but can be far more expensive than the ATM fee you’d pay using your debit card. The cost varies, but some credit cards will charge you a one-time cash advance fee and even an ATM fee if applicable. What’s more, most cards charge a higher APR for cash advances, and you start accruing interest immediately.

The only time a cash advance may make sense is in the case of an emergency where your only alternatives are over drafting at your bank or taking out a payday loan. Even then, it’s a good idea to try to avoid all these scenarios.

5. Charge Your Business Startup Expenses

If you’re starting a new business, you may have a lot of upfront expenses. But the problem with using credit cards to fund your startup is that it could take years for your business to succeed and turn a profit. During that time, you could end up paying thousands of dollars in interest. And if your business fails you’ll still be stuck with credit card debt.

You may be better off finding alternate sources of funding, which could include small business loans or investors.

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This Trick Will Help You Finally Pay Off Your Credit Card Debt

Here's the best way to leverage those flashy 0% APR offers from credit card issuers.

In 2017, one-in-four Americans say they’re thinking about money more than just about anything else. Does that sound like you? One of the best ways to clear some of your head space may be to pay down credit card debt. Less debt means fewer minimum payments, which means an easier time managing your day-to-day cash flow.

That’s not the only benefit of paying off credit card debt early either. With annual percentage rates (APRs) in excess of 15%, credit cards can cost you a big chunk of change in interest. Plus, high credit card balances can do big damage to your credit. (You can see the effect of your current balances by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

A Big Trick for Paying Off Credit Card Debt

Paying off credit cards takes planning and discipline. But you can also use a few tricks to make the process easier.

One big trick to make paying off credit card debt both easier and faster is using 0% APR balance transfer offers. It’s a simple strategy that can save you hundreds, or even thousands, in interest, not to mention allows you to potentially pay off your debt sooner.

You’ve got to leverage the offer correctly, however. Here are the basic steps to using this strategy.

  1. Apply for a card with a 0% introductory APR offer on balance transfers.
  2. Move some or all of your balance from an interest-bearing card to the card with the 0% APR. (Wondering what card to use? You can view our picks for the best balance transfer cards here.)
  3. Pay down that card as quickly as you can.
  4. If the card still has a balance when the introductory offer is up, consider applying for another 0% introductory APR card, and transfer the balance again. (More on this in a minute.)

That’s the gist of the strategy. It’s a great option for those with credit high enough to qualify for 0% introductory APR offers. Before you dive in, though, read through these additional tips and tricks.

1. Watch the Balance Transfer Fees

First off, it’s essential that you look at and understand balance transfer fees. Most balance transfer deals come with an upfront fee that gets tacked onto your balance once you make the transfer. This is how credit card companies come out on top with balance transfer deals.

Many times, transferring the balance to the 0% interest card will still save you money. But that may not be the case if you’re transferring a relatively small balance or if you’ll pay off the debt quickly either way.

To know whether or not a balance transfer will save you money, you’ll need to calculate your break-even point. First, estimate how many months it will take you to pay off the transferrable balance. Then, figure out how much interest you’d pay in that period of time if you did not transfer the balance. Finally, calculate the total fee you’d pay on the balance transfer.

If the balance transfer fee is more than the interest you’d pay in your current situation, it’s not worth your while.

2. Keep Track of Timing

Because balance transfer deals typically last between six and 18 months, you’ll need to keep careful track of when each introductory offer ends. If you’re running multiple balance transfer offers to pay off a lot of debt, keep a spreadsheet of offer end dates, current APRs, and future APRs once the offer is up.

Have a look at your spreadsheet each month. When a card’s offer period is about to end, decide whether to roll the remaining balance to a new balance transfer deal, or to leave it where it’s at.

Remember, it’s in your best interest to pay your transferred debt off in full by the time the 0% introductory offers expires. While you could potentially move the debt to another balance-transfer credit card, you’ll likely have to pay another fee. Plus, you’ll incur another hard inquiry on your credit report, which could ding your credit score. That’s why the next step is particularly important.

3. Know Your Credit Situation

This debt payoff strategy won’t work for everyone. You’ll likely only qualify for good balance transfer deals if you have good credit in the first place. And it’s difficult to say for sure how this scheme will affect your score.

On one hand, the hard inquiries generated by additional credit card applications will ding your score. But having a higher overall credit limit will improve it. These two may balance one another out over time.

The key is to keep track of your credit score throughout this process. If your score isn’t currently high enough to qualify for a 0% introductory APR deal, you may want to take time to polish up your credit before you apply.

4. Don’t Add New Debt

The number one key to making this strategy work for you is to not add any new debt. If you can’t avoid temptation to spend because you now have more available credit, you’ll just add to your mountain of credit card debt. One option is to shred your cards, even if you don’t close your accounts. This makes it harder to impulse spend on those cards that now have no balance once you’ve completed the transfer.

As long as you keep from adding new debt and follow the steps outlined here, 2017 could be a great year for getting free from debt.

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How to Handle Debt & Maintain Your Mental Health

It’s no secret that most people feel lousy when they’re in financial trouble, and one of the biggest financial stressors seems to be debt.

It’s no secret that most people feel lousy when they’re in financial trouble, and one of the biggest financial stressors seems to be debt. When you’re in debt, simple tasks like going to your mailbox, where you anticipate finding an avalanche of bills or overdue notices, can bring on stress. If you relate to this feeling, you aren’t alone. According to a Time article, there are a plethora of Americans in an excessive amount of debt. In fact, the Federal Reserve reported at the end of 2015 that, on average, an American between the ages of 18 and 64 has $4,717 in credit card debt.

So aside from being a burden on our wallets, what does this debt do to us?

“Financial issues are a common source of stress,” Dr. Jay Winner, director of the Stress Reduction Program for Sansum Clinic in Santa Barbara, California, said. “Additionally, when someone has extensive debt, there is a tendency to work excessive hours. This deviation from a healthy work-life balance leaves people less resilient to other stressors in their lives.”

How Debt Stress Impacts You

Chronic stress is linked to a wide variety of mental health ailments. Dr. Robert Williams, a psychiatrist in Phoenix, explained that long-term stress physically affects the brain through the well-known “fight or flight” mechanism, which occurs during times of perceived danger, such as those experienced when a threat to financial well-being occurs. Williams explained that when the deep limbic system, or primitive brain, is less active, there is generally a positive, more hopeful state of mind. When it is heated up, or overactive from too much stimulation in the form of perceived threats, negativity can take over.

In addition to an overactive limbic system, Williams said some people are born with a thin cerebral cortex. Emotional stability is a manifestation of the cerebral cortex, and studies suggest a relationship between depression and a thinning cerebral cortex. Dr. Williams said the combination of an overactive limbic system and a thinning cerebral cortex could lead to severe depression. Long-term stress from things like too much debt can cause anxiety, restlessness, lack of motivation or focus, feelings of being overwhelmed, irritability or anger, sadness or depression, even thoughts of suicide.

Coping With Debt Stress

If you are stressed because of a financial situation, here are some suggestions from Dr. Winner that may help you cope.

  • Be mindful. Focus on doing one thing at a time with your full attention.
  • Learn a relaxation exercise. Learning to relax for a specified period of time will help you learn to relax through the day and reduce stress.
  • Do not resist the stress. There are not much in the way of health risks from short-term stress; so if you’re too stressed now, don’t stress about being stressed. Just learn some strategies so the stress does not become excessive in the long term.
  • Learn patience. This is important because the emotion most strongly associated with heart disease is anger and hostility.
  • Decrease the frustration of failure. Instead of thinking you are worthless when things go wrong, realize progress comes from learning from our mistakes. Ask, “What can I learn from this?”
  • Keep things in perspective. One way to keep things in perspective is to think of your health, family, friends etc.
  • Take care of yourself. Eat nutritiously and mindfully, enjoying the taste and aroma of your food. Get regular exercise.
  • Have some technology-free time. If you can spend some of that time out in nature, that’s all the better.
  • Talk with someone. If you’re overwhelmed by stress and basic techniques are not helping, discuss this with a physician or mental health professional.

Paying Off Your Debts

Getting out of debt is one sure-fire way to help reduce your stress levels. Of course this is easier said than done, so consider taking small steps toward this larger goal. To start, gather all the information about your debts, including who you owe what amounts to and any interest rates or fees that are applicable to each of the debts. From there, consider what options you have. Can you consolidate your debts? Move the debt to a balance transfer credit card and eliminate interest charges for a while? You may even decide to seek the advice of a professional debt counselor to help you find the right path.

Whatever you do, take a deep breath and keep moving forward. Not only will paying off these debts help your stress, but it will help improve your credit scores. (You can see how paying down your debts are affecting your credit by checking out two of your free credit scores, updated every 14 days, on Credit.com.)

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5 Financial New Year Resolutions You Might Want to Try

Here are five financial new year's resolutions to put on your to-do list.

Every new year comes with more New Year’s resolutions. Here are five you might want to put on your list.

1. Have a Plan

Set aside some time in 2017 to go over your finances and see how you’ve been doing. Are you following a budget? Do you need to? There might be some lifestyle changes you need to make to stay on top of your bills. You might have to put together a budget for an upcoming event or start saving for your children’s education. Set aside time to figure out where you stand and how you plan to afford your expenses for the year. Consider reevaluating that plan every three months to make sure you are on the same page or make any adjustments.

2. Set Up an Emergency Fund

If you don’t have an emergency fund already, now is the time to create one. Make 2017 the year you are always prepared, even for unexpected expenses. You never know when your heat will break or you need a car repair. An emergency fund can be an easy fix for an unexpected expense and keep you out of debt at the same time. (Not sure where your finances stand? You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

3. Pay Off Your Credit Card

If your credit card has a balance, now is the time to pay it off. The new year is a fresh start to your life, so why not make it a fresh start for your credit card as well? If you have multiple credit cards with a balance, then you might want to focus on paying one balance down at a time. Continue to make the monthly payments on all cards, although you might want to make biweekly payments to the credit card with the highest interest to see a decrease in your overall balance.

If you have a large amount of credit card debt and aren’t sure how to repay it, you might want to consult with a debt attorney or bankruptcy attorney to weigh your options. It can’t hurt to ask. Consider making a list of your questions before seeking help.

4. Check Your Statements Regularly

Do you check your statements every month? Are you aware of how much money is in your bank account at all times? Make it a New Year’s resolution to always check your finances. You might want to consider signing up for online banking or downloading your bank’s app to help you stay organized. If you are always in the know, then you will always have an idea of how much debt you have, how much you can spend and if there have been any irregularities in your account.

5. Save for an Event

Have anything big planned for 2017? You might want to make a list of financial goals and pick one to start with. Maybe you and your partner have always wanted to go on a tropical vacation together but never had the money. Now is the time. Put a little money aside each month and give yourself an end date. You might want to give yourself a year to save, depending on how much you’ll need. Be sure to check your budget before you save for your goal. You don’t want to fall into debt because you were putting too much money into your savings and didn’t leave enough over to live on.

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4 Ways to Get Financially Healthy in 2017

Here are four savvy financial resolutions for the new year.

Next year will be here before we know it. Now is a great time to brush up on your financial health to ensure you have a happy and financially healthy new year. Here are some tips to help you get started.

1. Check Your Credit Report

You can obtain a free copy of your credit report every 12 months from each of the three major credit reporting agencies at AnnualCreditReport.com. Consider taking a second look at some financial mistakes you might have made in the past — maybe you missed a couple of payments on your credit card or took out too many credit cards at once, causing multiple hard inquiries.

You might want to write down what you did right and what you did wrong to help you not make those same mistakes in 2017. Since you are checking your credit report, you might also want to take a look at your credit score and think about ways you can boost your score in the new year. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

Taking a look at your credit report can also help you check for any irregularities such as fraud or identify theft. It’s a good idea to stay on top of your finances to avoid fraudulent activity.

2. Cash in Missing Money

Missing or unclaimed money could be checks that haven’t been cashed yet, dormant bank accounts, insurance refunds, etc. Now is the time to cash in your unclaimed money and put it toward any leftover debt you have so it doesn’t persist into the new year. If you paid off most of your debt, then consider putting your extra cash toward an emergency fund or savings account.

3. Tackle Your Debt

Paying down or reducing your debt in 2017 can be a great New Year’s resolution to start with. After checking your credit report, you might want to create a plan on how to pay off your debt in a timely manner. If you have a high-interest rate credit card with a high balance, then consider starting with that and going from there. (This credit card payoff calculator can help you come up with a plan.)

Consider taking a look at your bank statements from 2016. You might have been spending more on non-essential items than essential expenses. Go over the items that are most important and considered a need and not a want. If you have any outstanding debt, then you might want to skip over some of those extra indulgences until your debt is wiped clean.

4. Establish Savings Goals

Having a savings account in the new year will help you prepare for unexpected expenses and could even help you reach your financial goals (a new car, saving for a house, vacation, etc.). Take a look at your budget to help you devise a practical plan and consider having a start and end date to reach your savings goal.

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4 True Tales of Maxing Out Credit Cards

maxed-out-credit-card

Some people like to joke about taking things to the limit, but when it comes to your credit, maxing out a credit card is no laughing matter.

Maxing out a credit card means swiping until you reach the card’s credit limit, or the total amount of credit extended to you. And that’s bad news for your credit scores because your debt utilization ratio (e.g., how much debt you have versus your total available credit) is one of the key factors credit agencies use to determine your score. Bump up against that limit, and your score will take a hit.

Debt levels are another factor that go into your score. Carry too much, and you’ll send a red flag to lenders that you’re in over your head; slack off on a few bills, and they’ll begin to think you can’t manage your payments responsibly.

We spoke with a few Credit.com readers who learned the hard way about the dangers of maxing out credit cards. While they aren’t proud of what they did, they came out stronger for their experience and took steps necessary to get their finances back in order. (Note: At their request, some names and locations have been withheld to protect readers’ privacy.)

‘I Maxed Out Seven Cards’  

Between 2006 and 2008, Steven M. Hughes was saddled with a lot of debt. “I maxed out seven cards in my freshman year alone,” he said via email, “two more as a young professional.” The problem was he didn’t understand how to use them. “My parents always told me to stay away from them and didn’t teach me how to manage them properly,” he said.

“I had one credit card for emergencies that I maxed out on car repairs for a car at the time. I had department store cards that I maxed out on clothes for school and work because I worked while I was in college. I had a card I maxed out going to a family member’s wedding in New York City. I started assigning jobs to each card, but I didn’t have the income to pay them off, and paying the minimum balance wasn’t cutting it. All but one card was charged off. I managed to pay the lone card off and start a new account with the creditor.”

Today, the Columbia, South Carolina, resident teaches millennials how to manage their money through his nonprofit, Know Money, Inc. “After making all the financial mistakes, I started to learn as much as possible about personal finance,” he said.

‘I Was Into Wearing Ralph Lauren’ 

Deborah Sawyerr, a fashion and lifestyle blogger based in London, was about 32 when she visited Woodbury Common Premium Outlet, in Central Valley, New York, during a family holiday in 2005. “We bought clothes, shoes, suits, my daughter some bits, belts, jackets and some gifts,” she recalled via email. “At the time, I was into wearing Ralph Lauren clothing, so most of my spend went on this particular brand.”

Her credit card balance at the time was pretty low, but she admits she went a bit overboard that trip, racking up roughly $5,000. “As luck would have it, at the same time, my employer had just paid me in excess of £5,000, or thereabouts, as a redundancy package,” she said. “I basically — and perhaps I wasn’t so naïve — used the entire redundancy package to clear the debt in one go.” Humbled by the experience, Sawyerr said hasn’t maxed out a credit card since.

‘I Knew Very Little About Money’ 

In 1997, John Schmoll, Jr. was an undergrad with four maxed out credit cards totaling a whopping debt of $25,000. “When I went to college, I knew very little about money and was enticed to sign up for credit cards out of the promise of some sort of free swag — T-shirt, Frisbee, you name it,” he wrote in an email. “I ended up signing up for four credit cards this way, and used them to finance a lifestyle that I wanted but could not afford.”

Teetering on the verge of bankruptcy, at a roommate’s urging Schmoll decided to meet with a debt counselor, who helped him lower the rates on his cards. From there, he set up a budget, which enabled him to pay the cards off five years later. “That changed my life forever and put me on the path I am today, working toward financial independence,” he said. Today, the Omaha-based father and finance industry veteran blogs at Frugal Rates about what he’s learned.

‘0% Offers Were Appealing’ 

Years ago, Lisa, a marketing strategist, found that the 0% promotional APR offers from credit card issuers “were appealing.”

“I had six credit cards, all with a little over $3,000 on them,” Lisa said in an email. “I consolidated them into one account, maxing out that card, and I paid it off in about two years.”

So what got her there in the first place? Overspending. “I was floored to find out how liberal I’d been with spending — luxury items, travel to the Maui Writer’s Conference, etc.,” she said. “I behave very differently now.”

For starters, she said she doesn’t keep a revolving balance, and diligently pays her balances off every month. “That way, there’s no surprise debt, no interest charges, no late fees, etc.,” she said.

If you have reason to believe your spending’s out of control and it’s affecting your credit, you can read up on these tips to build credit the smart way and view your free credit report summary on Credit.com to see where you might want to improve.

Image: m-imagephotography

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