If you sometimes feel like you’re working just to pay your debts, you’re not alone. According to the Center for Macroeconomic Data, aggregate household debt in the United States increased to $13.95 trillion in the third quarter of 2019. This was the 21st consecutive quarterly increase in consumer debt. At a per capita debt of about $75,000, California far outstrips the national average and other populous states such as New York and Florida, though the discrepancy is due in significant part to higher mortgage loan debt in California.
Breaking the Cycle of Debt
Often, people who are overwhelmed by debt look at potential solutions and question whether or not they can afford to take action. It’s a natural mindset when you’ve spent months or years thinking about what you can afford to pay this week or this month, and prioritizing based on urgency. And, that constant financial pressure can make it very difficult to stop, take stock, and make reasoned decisions about the best way to proceed. Unfortunately, the very strategies that most people employ to keep the most pressing bills paid and stave off crises often also ensure that the cycle of running behind, paying high interest and fees, and living in debt continues.
Before you put your head down and continue to push forward, stop and assess just how much your debt is costing you, and what you’re giving up to keep servicing it indefinitely.
The High Cost of Credit Card Debt
Of course, every family’s combination of debts is a bit different. But, credit card debt provides a good illustration of just how expensive it can be to carry debt. The average credit card debt in California is $8,144. According to separate data, the average in Los Angeles is slightly higher, at $9,161.
The report from the national Chamber of Commerce cited above concluded that a Californian with the median credit card debt and median income of $71,805 could pay off those credit cards in just 10 months–if he or she devoted 15% of income to credit card payments. In that situation, the account holder would pay a total of about $826 in interest. But, few median-income earners can afford to devote $897/month to credit card payments. Instead, far too many–especially those struggling to balance credit card debt with other debts and expenses–default to making minimum payments.
Making 2% minimum payments, the same median earner with the same $8,144 in credit card debt can expect to be making payments on that debt for 112 months, or nine years and four months. Over that time, the credit card holder will pay $18,242.56 to satisfy that $8,144 in debt–more than half of it in interest. That’s more than $10,000 that’s going to pay credit card interest instead of helping to grow savings, plan for retirement, buy a home, or any of the other goals you may have for your money.
The specific numbers will differ: different credit cards have different interest rates, and slightly different minimum payments. And, interest rates and payoff times will vary across other types of debt, as well. But, the concept holds true for all. The longer you stay in debt, the more money you’ll be throwing away on interest rather than saving or spending on the things that matter most to you. And, that assumes that you’re able to make your minimum payments on time. When you throw late fees in the mix or see interest rates shoot up due to missed payments, the outlook gets even worse.
Getting out of Debt
The right way to free yourself from high-interest, high-fee debt depends on your specific circumstances. Some considerations include how much income you have, what type of assets you have, how much debt you are carrying, what types of debt you are carrying, and the interest rates on your debt. Sometimes, simply negotiating with creditors can provide enough relief for you to regain control of your finances. But, most consumers are no match for large creditors and debt collectors when it comes to negotiating a favorable settlement, lower interest rate, or other terms.
That’s why it’s in your best interest to consult with an attorney who isn’t focused on a single solution. At Borowitz & Clark, we aren’t just bankruptcy attorneys. We are committed to helping people in financial trouble find the right solution. We will carefully consider your specific circumstances and explain your options. We’ll also tell you what to watch out for, so you can avoid pitfalls associated with many possible solutions, such as debt consolidation and debt settlement companies.
We’ve helped tens of thousands of people resolve their debts. To find out how we may be able to help you, just call 877-439-9717 or fill out the contact form on this page.