A US News & World Report poll in late August 2021 shows that more than 53% of Americans who have unsecured debt say it stems primarily from credit cards.
Credit card debt is considered unsecured debt, which means it’s not attached to an asset like a home or car. Respondents were asked what types of debt make up the majority of their unsecured debt, and besides credit cards, they name:
About 52% of respondents say they have between $10,000 and nearly $40,000 in unsecured debt.
What interest rates do they pay?
Almost 8% of respondents say they don’t know what their top interest rate is, which is worrying. Among those who know their prices, here are the results:
- About 35% indicate an interest rate of 10% or less.
- More than 20% have a rate between 11% and 15%.
- More than 19% have a rate between 16% and 20%.
- Almost 16% have a rate between 21% and 25%.
- Just under 7% have a rate between 26% and 30%.
- Almost 4% have a rate that exceeds 30%.
Your interest rate depends on the type of debt you have and your credit rating. With debt comes interest costs. Some types of unsecured debt, such as credit cards and payday loans, charge compound interest.
This means that you pay interest on a balance that contains interest debited from the previous month. With compound interest, your debt can grow quickly. Once you get caught in this dangerous spiral, it’s difficult to get out.
Why Americans Are Struggling To Get Out Of Debt
Almost 42% of respondents say they have more unsecured debt than they did a year ago. When asked what their biggest challenges are in paying off their debt, about 20% say it’s an unexpected expense.
- About 19% have trouble paying bills on time.
- More than 15% have trouble budgeting payments.
- More than 15% cite inconsistent income as the culprit.
- About 13% say growing interest burdens are an important factor.
- More than 7% have trouble keeping track of multiple accounts.
How to pay off your debt
The first step is to figure out what’s stopping you from managing your debt. And if you find that you have room for improvement in some areas, that’s okay too. Be honest about your situation, and then you can focus on one or more of these solutions:
Almost every fifth respondent states that they do not pay bills on time. If the problem is that you don’t have the money when the bill is due, you need to contact your lender and explain your situation. Depending on the lender, it is possible to get into one hardship program while collecting bills.
If it’s a timing issue, see if you can change the invoice due date. Put it off to a week when you have the cash flow to cover expenses.
But what if it’s all about forgetting? The simple solution is automate your payments for as many bills as possible. When you set up automatic payments with your bank or a credit card, your lender deducts your debt from your authorized bank account.
But make sure you have enough money in your bank account to cover the amount. Once you get into a rhythm and pay your bills on time, you can look for solutions that will help you pay less interest on your debt.
When asked how to pay off debt, about a quarter of respondents choose a debt consolidation loan as the most attractive option. With this type of loan, you consolidate your debts, reducing the number of creditors. And hopefully, you’ll get a lower interest rate and monthly payment.
You need to do some online comparison shopping. Compare rates and make sure you’re getting the best rates you can qualify for.
It’s important to note that consolidating medical debt is not a good idea. It can add interest costs to an already unmanageable debt. Medical debt consolidation also takes away the consumer protections that apply to medical debt.
However, for other types of unsecured debt, a debt consolidation loan is a good option for those who don’t have one excellent credit scores. But if you have good credit, consider a money transfer credit card.
With excellent credit, you should qualify for a balance transfer credit card. These cards often come with an introductory interest rate of 0% for a period of 12 to 18 months.
This gives you the opportunity to redeem (or at least reduce) the balance during the interest-free period. Going this route will help you figure out what your monthly payment needs to be so that you have a zero balance before your regular APR kicks in.
If their debts were paid off, nearly 23% of respondents say they would use the extra money to top up their emergency fund, which is an excellent choice. An emergency fund will help you get through a sudden financial crisis.
Even if you’re in debt, try putting some money into your emergency fund every now and then. A little helps too.
If you feel like your debt is insurmountable, get help. No matter how bad your situation is, there is a solution. It can take a long time to fix, but starting today is the right step.