Not Just the Cash-Strapped Are in Debt

Key Takeaways:

• Signs of credit card debt troubles continue to accumulate among consumers. 
• The data indicates that some people are running into trouble as they struggle to manage credit card debt. 
• The Juice highlights a thing or two to look out for in your own assets-versus-liabilities equation. 

Here’s where we are on credit card debt as we commence 2023: 

• Credit card debt continues to rise its fastest in roughly 20 years. Up 15% annually, as of Q3, at $930 billion. 
• The personal savings rate hit its lowest since 2015, coming in at a paltry 2.3% in October. 
• Auto loan delinquencies of 60 days or more among deep subprime borrowers (those with credit scores below 580) increased nearly 39% between November 2019 and November 2022. 
• Among subprime borrowers (those with scores of 580 to 619), 60-day delinquencies rose about 37% over the same period. 
• Transunion sees credit card delinquencies rising in 2023. 

Now, with credit card interest rates averaging an all-time high of 19.6%, an increasing number of consumers are carrying balances. 

According to Bankrate, 35% of adults carry credit card debt from month to month. That’s up from 29% last year. Roughly 46% carry over a balance on at least one credit card. Up from 39% last year. 

Run the numbers on the average credit card balance of $5,474 at 19.6% interest, and it’ll take you nearly 17 years to pay off by making the minimum payment. 

Not good. 

The drum The Juice beat throughout 2022 continues to get louder. With inflation hitting some households (much) harder than others and pandemic savings running low (or out), consumers continue to turn to credit cards to make ends meet. And, in some cases, fund discretionary spending. 

But not only the cash-strapped run into debt problems. 

It’s one of the dirty little secrets personal finance scribes love to ignore. Some people doing relatively well financially have trouble parting with checking and savings account balances. 

At the register in a retail store. In a restaurant. While booking travel. You have to decide whether to pay cash via a debit card or put it on a credit card. Some people with more than enough cash on hand to pay the expenses still turn to credit cards. 

Having a cash balance to stare at makes them feel cash-secure. Parting with it to make a big purchase (even if it’s only, say, $100) makes them feel cash-insecure. So they tell themselves they’ll charge it and pay the balance in full within 30 days. After they get paid. Often, this full payoff doesn’t happen, and credit card debt piles up. 

But what’s the point of having ample savings if you have copious high-interest debt? 

Consider this strategy: Pay cash from your checking or savings. Then, replenish it over a reasonable time frame to pay yourself back. This way, you don’t accumulate debt, and you’re back to being comfortable and cash-secure in no time. 

Same goes for investing. 

Lots of us love buying stocks, but if you’re investing alongside a heavy high-interest debt load, the math simply doesn’t work out. If you’re investing on margin, even worse. 

So eliminate debt and resist the urge to take it on when you’re doing well with money. Pay cash, and if you swipe or tap plastic, make sure it’s a debit card that draws money straight from your checking account. 

The Bottom Line: Companies often go bankrupt for the same reasons individuals do. Frivolous spending. Or spending without much forward-looking thought or prudent oversight. Don’t be Bed Bath & Beyond. Or Sears. Or JCPenney. 

And if you’re going to take a chance on a busted meme stock such as BBBY, make sure you’re doing it from a position of financial strength. Not in an attempt to land a windfall to pay down credit card debt.

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