Credit problems are on the rise

Credit-card debt is soaring, interest rates on balances have moved into the 30% range on many cards, and delinquencies and bankruptcies are rising. The statistics are grim as consumers fight to keep up with higher prices, having spent down their pandemic-era savings.

According to data released by the Federal Reserve, credit-card balances increased by $27 billion in the second quarter of 2024 to $1.14 trillion, an all-time record.

TransUnion says the average credit-card balance per customer rose from $5,947 in the second quarter of 2023 to $6,329 in the second quarter of 2024.

Bankrate.com reports the average credit-card rate in September is 20.78%. But many store cards now charge as high as 34%, limited only by state usury laws.

At BanruptcyWatch.com, the 2024 numbers are soaring. Chapter 7 filings increased by 19.6% year-over-year. And Chapter 13 filings, allowing individuals to restructure their debt, increased by 11.46% year-over-year.

In recent months I’ve seen a huge uptick in debt questions on my Ask Terry blog at TerrySavage.com. Debt problems are increasing, says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling, the national nonprofit umbrella organization for more than 56 trusted community-services agencies in every U.S. state and territory.

He says the organization has seen a large increase in counseling requests over the past 12 months. In fact, its proprietary “Debt Burden Scale,” which is created using its own counseling statistics combined with federal debt statistics, has risen dramatically.

On a scale of 1 to 10, the burden was at 3.4 in the third quarter of 2021, and now it is over 6. A recent report says: “At this stage, levels of household debt make it necessary for significant sacrifices to be made and saving becomes a distant dream.”

McClary says that people are using “all available lines of credit” to fund the gap between their income and basic necessities. Uncovered medical expenses cause a portion of the debt, and McClary notes the trouble is not about extravagant consumer spending. Instead, it is about using credit to make ends meet.

And with higher finance charges, those minimum monthly payments can easily get out of control. Add to that all those “four easy payment” plans, which suddenly arrive without planning, and people can be in big trouble.

Get help before it’s too late

If consumers are having debt problems, they are bound to see more late-night TV commercials and Internet popup ads touting for-profit debt-settlement companies. But here’s a warning: They can often get you into more trouble than you realize.

The “for-profit” model of debt settlement asks you to stop paying your cards. Instead, these companies want you to send them a lump sum every month, which will build up a pool of cash for them to use in negotiating with your creditors for a reduced-balance payoff. And sometimes it works. At least for a few of your debts.

But in the meantime, your credit is ruined because you aren’t making even those minimum payments on a few of your cards. Once you’re delinquent, your creditors may go to court to get a civil judgment — or even garnish your wages in some states. It’s a quicksand of your own making.

Trusted credit counseling

The member agencies of the National Foundation for Credit Counseling provide in-person counseling or will discuss your issues over the phone. Reach the nearest local member agency by calling 800-388-2227, or search at www.NFCC.org.

There are several levels of help available. Professional counselors will go over your entire financial situation and make recommendations about adjusting your budget and dealing with your current debt. Or, if the burden is too great, they offer a debt-management program. They work with your creditors to accept lower monthly payments while you send the agency one lump sum every month. The money is distributed to your creditors, who stop pursuing you.

Simple counseling does not go on your credit report, while a debt-management plan does get reported to the credit bureaus. But it has less impact than a bankruptcy.

And if bankruptcy is inevitable, the nonprofit credit counseling agency can answer your questions about the impact, the exclusions and the entire process. Since consumer bankruptcy requires debt counseling, whether it's Chapter 7 or Chapter 13, you will be one step ahead in the process.

This is the moment of truth about credit and debt. Don’t hide from your debt. Instead, deal with it now, before it gets worse. You’ll be glad you did. And that’s The Savage Truth.