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As American Economy Tries to Stay Afloat, More and More People Survive on Debts

As the world rears from the after-effects of the COVID pandemic, Americans are heavily leaning on their credit cards to make ends meet. According to reports released by the Federal Reserve Bank of New York, card balances have now totaled up to $1.08 trillion.

As time passes by, more and more cardholders are carrying debt from month one to the next as lesser of them able to pay off their dues in full, according to a report released by Bankrate.com. A total of 49% credit card owners carries a debt for months on at least one card, which is a significant rise from last year’s total of 46%. The report also claims that approximately 56 million current cardholders have been in debt for at least one year.

Government officials and financial experts have publicly admitted that the current financial environment of the country is tough, even though inflation has eased, there is still a cumulative effect left behind. Experts have analyzed that this may have been a direct consequence of “shifts in lending, overextension, or deeper economic distress associated with higher borrowing costs and price pressures.”

In addition to this, carrying a balance lower than your credit score, combined with record-high annual percentage rates makes it almost impossible for an individual to escape this debt cycle. The average credit card rate is currently higher than 20%. It was recorded to have risen at the steepest annual pace ever, in accordance with the Federal Reserve’s interest rate hike cycle.

Even though Fed officials announced a total of three cuts coming this year, financial experts have predicted that credit card APRs will not improve much.

Studying the current market at 20.74%, if an individual made minimum payments toward the average credit card balance, which is approximately $6,088, according to a report by Transunion, it would take that individual a total of 17 years, or more, to completely pay off the debt, with an additional cost of $9,072 in interest, Bankrate predicted. The minimum payment math is brutal for the citizens.

Experts have advised debt holders to understand and acknowledge what they owe, in addition to the interest rate applied to their debt, in order to detangle this financial mess. As a second step, they should start to pay away the debt with a 0% balance transfer card.

Another available option for credit card holders is to acquire cards that are offering up to 21 months with no interest on transferred balances. If card holders are able to take advantage of that type of promotion on the same average balance and successfully make 21 equal payments of just under $300, they can expect to be out of this vicious debt cycle in a time frame of less than two years.

Experienced players of the financial field have also suggested to make the best use of a balance transfer boils down when it comes to making payments on time, in addition to paying down the balance during the introductory period. Credit card holders were advised not to hold of the due payments, since any unpaid balance will have a higher APR applied to it, which is approximately 23%, in line with the rates for new credit.

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