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Household debt levels broke a record, as the collective IOU surpasses $16.15 trillion, the Federal Reserve reports this summer. That’s a $312 billion gain on last year’s consumer debt levels, or a 2% increase from 2021.
Over the past few years, many people have turned to consumer loans to help them handle their increasing costs. And until sky-high inflation comes back down to earth, people could continue to dig themselves into deeper debt without intervention.
What is Consumer Debt?
Consumer debt includes any revolving and non-revolving financial product that someone uses in their personal life. With a broad definition like this, consumer debt winds up covering a lot of different credit, including mortgages, auto loans, short term personal loans, student loans, credit cards, and lines of credit.
These personal loans and lines of credit come from a variety of financial institutions, like banks, credit access businesses, credit unions, online direct lenders, and brokerage firms.
Sometimes, it makes sense to take out a loan. You might find an auto loan that helps you get a vehicle you need to get to work every day. Or you might search for personal short-term loans when you run into an emergency expense you can’t afford on your own. Even credit cards have their use, letting you earn cashback rewards on everyday purchases.
How to Get a Handle on Your Consumer Debt
If you’re ready to free up your paycheck, put more money into savings, and spend your money on something other than debt, try these debt-fighting tips.
1. Pay More Than the Minimum
Don’t get deceived by the minimum payment on credit cards and lines of credit. You might pay less than your outstanding balance now, but you’ll pay more overall to clear your debts.
Paying the minimum means you’ll carry over a balance that’s subject to interest and finance charges. In other words, you’ll owe more just by carrying over a balance, even if you don’t charge another cent to these accounts.
Experian crunched the numbers:
If you have a $4,000 balance on a credit card with 21% interest, paying the minimum would result in racking up $6,374.64 in interest. It would take you 257 months to pay off more than $10,000.
2. Consider Consolidating Your Debt
Consolidating your debt involves taking out a new loan or line of credit to pay off multiple auto loans, personal short-term loans, and credit card balances. This technique only makes sense if you’ve locked into high-interest loans, and you can find a consolidating financial product with lower interest. This way, you might accrue less in interest and finances charges.
3. Ask for Help
It’s hard to make ends meet today as inflation and interest rates conspire against average folks like you. If you’re still having trouble managing your debt, talk to a free credit counseling organization for help. These zero-cost services help to develop a personalized plan to pay off debt and save money. They can also point you towards government assistance programs for which you may qualify.
Debt is on the rise, just like inflation, but there are ways to handle these challenging financial times. Reach out for help, consolidate loans, and budget to make more than the minimum. These tips can help you manage your debt better.