Big credit card debt is a big problem. Collectively, Americans are on the hook for more than $900 billion, according to CardHub, the highest total since the 2008 recession.
Not only are Americans racking up debt at an alarming rate, but we're also in denial about how much we owe. When people are asked about the total balance on their credit cards, their estimates are 37% percent lower than the amounts reported by lenders, according to research by the Federal Reserve Bank of New York.
Whether they know exactly how much they owe (and how much they'll end up paying over time on their debt), many Americans fear they'll be shackled to debt for the rest of their lives. Twenty-one percent of people surveyed by CreditCards.com in 2015 said they feared they would die in debt.
Based on data from CardHub, they have reason to be concerned. The website, which helps people search for and apply for credit cards, recently put together a list of the average credit card balances in nearly 2,500 US cities, based on data from credit reporting agency TransUnion. Using median income data for each city, they also determined how long it would take the average resident to pay off their debt and how much they would pay in interest (assuming an average interest rate of 14%).
In many cities, payoff times could take a decade or more. CardHub determined it would take over 32 years for people in College Station, Texas, to pay off their average debt of $5,601. Over that period, they'd fork over more than four times their initial debt - $25,221 - in interest. People in Murray, Kentucky; Marquette, Michigan; and Stillwater, Oklahoma, were also looking at payoff periods of more than 10 years.
GREENVILLE, NC (WNCT) - The holidays may have come to an end, but for many - the debt acquired hasn't.
At least 37% of Americans obtained new credit card debt this holiday season, and according to creditcards.com, more than one in five thinks they'll never get to a zero balance.
I talked to a local financial advisor who says it's possible to become debt-free.
"The interest rates that you pay is probably the first place to look," said Jon Randall, Platinum Financial Advisor."
The higher the interest rate, the more you're going to pay each month, so try and move those payments to a card with a lower interest rate.
"Sometimes credit cards offer maybe a zero percent balance that can be a temporary place to at least move that so you're not paying interest."
If you don't want to move payments, simply ask your credit card company for a lower interest rate. They want to keep your business and many people have luck getting their rates reduced.
The next plan of attack - start with the small balances first.
"When somebody has a lot of different payments, that can really eat into your cash flow. If you can wipe out a smaller, eliminate that payment, you can put that payment towards other places."
John Britt says that's his plan of attack.
"This holiday season I definitely spent a little more than expected.. spent a little more money on Christmas gifts and it kinda added onto my expenses this year."
"One step at a time helps," said Randall. "Maybe allocating just $20 a month, maybe $40 a month, maybe it gets up to $100 a month towards paying those down. It's a journey but it can be done."
CardHub recently published a ranking that calculated what US cities maintain the least and most sustainable credit card debts. By drawing on credit data provided by their partner TransUnion, CardHub analysts calculated the number of months required to pay off the average credit-card balances of 2,547 US cities as well as the associated costs of doing so.
Richmond was determined as one of the cities with the least sustainable credit card debt, edging out only four other cities at the the bottom of the list: West Chester, PA; Kent, OH; Powhatan, VA; and College Station, TX.
According to information from the CardHub report, Richmond's average credit card debt is $5,746. The average cost to pay off that debt is $9,579 and the average number of months needed to bring the balance to zero is 210 months.
Dana C. Overall, a local certified public accountant who has been practicing for 28 years, said he was not surprised to find Richmond at the bottom of the rankings.
"It's not surprising actually," the CPA said from his office on Second Street. "People are very unaware of their FICO scoring and how manage their credit cards to it's maximum potential."
Overall said in his 28 years, he has been shocked by some of credit card statements that has traveled across his desk.
"People are oblivious to what they can do to help themselves when it comes to credit cards, a lot of people abuse their credit cards which gets them into trouble."
The accountant said most people with credit cards are guilty of not making a long term plan or falling into common misconceptions about FICO scores and payments.
Overall said he often teaches a class on how to boost one's FICO score within a month's time and encourages others to make a plan for spending and treating credit cards as tools rather than lifelines.
"People think that as long as they make timely payments then their credit scores should continue to go up, and then they get discouraged when they go to get a mortgage loan that their FICO score is not where it needs to be."
With some careful planning and by only using 30 percent or less of your available credit, Overall said credit card users can use the mathematical algorithm that is applied to credit reports by FICO to their advantage.
The FICO scoring system (Fair, Isaac, and Company) is the number representing the creditworthiness of a person or the likelihood that person will pay his or her debts.
While the FICO formula for calculating credit scores is secret, Overall said one can easily swing their credit scores up or down, but that spending habits have to be curbed.
"It comes down to education, you have to educate yourself on what goes into their credit scores. It affects people a lot more than they realize," the accountant said.
Overall's point about people often not having a plan for spending and how to manage their credit cards is one that current research into brain function and psychology supports, according to research by Nobel prize winner Daniel Kahneman, Amos Tversky and Richard Thaler.
Current research into how human brains react to money indicates that people are particularly bad at managing their finances and spending especially when money is in electronic forms such as credit cards.
However, as bad as some easy spending can be, Overall says that a person's credit score is only one snapshot at one time.
"When they pull your credit score it is only one current moment in time, they can't go back and look at it. So it is something that can be changed," said the accountant. "If you have had a bad time there is a way out of it."
Overall recommends that frequent card users continue to use their cards responsibly.
"No one should ever go over 50 percent of their available credit," said the CPA. "It really hurts your score, late payments are also something that can bring it down."
Overall said even if credit card users can't pay off the entire card's balance it is best to try and pay three times the minimum due. Also, he recommends dispensing with store cards, as they do little to help your credit score but can be detrimental if used incorrectly.
"They come with very little of the perks of regular cards which are weighted more on your report, but can they can hurt you just as bad," the accountant explained.
Overall said those that are in extreme debt must plan accordingly and try to acquire some responsible credit card usage while they pay off other debts.
"They may have to start with a secured card and pay a few hundred dollars up front," he said. "But as they continue to use that card properly, they will continue to bring their credit scores up and they can begin to apply for cards with higher limits which increases your score. It's all about educating yourself and personal responsibility."
While Richmond was one of the cities with the least sustainable credit card debt, Cupertino, CA, had the most sustainable debt with an average credit card debt of $4,703 with an average 10 months to pay off the debt.
View the full report at www.cardhub.com.
A recent survey of personal credit card debt found that Carbondale ranked in the bottom 1 percent of 2,547 cities and towns in the nation. Carbondale ranked 2,537th.
Contributing to that low score is the fact that of all the cities in the survey, Carbondale ranked dead last in median earnings for workers age 16 and above.
The study, conducted by the credit-monitoring company CardHub, also showed that the most credit-card-debt-laden cities are college towns. Of the 10 towns ranked below Carbondale, eight are homes to major universities.