Strategies to Pay Off Growing Credit Card Debt


TransUnion found that average credit card debt per borrower increased 8.5% annually to $6,218. With consumers under pressure, it can be difficult to find wiggle room in your budget to pay off credit card debt.

Discover Dan Nickele, Vice President of Personal Lending, Joins Wealth! Get an inside look at current credit card debt levels and how Americans manage it.

Nickell explains how a personal loan can help with debt management: “One of the great things about a personal loan is that you can check the interest rate without affecting your credit report, so you can explore your options. I think choice is what's best for consumers friends, especially those trying to manage debt, so I encourage anyone who thinks they might have a savings opportunity to go out and figure out what interest rate they can actually get and explore their payment and interest rate options.

For more expert insights and the latest market updates, watch the full episode of FORTUNE here!

The author of this article is Nicholas Jacobino

Video transcript

Wednesday's CP I report showed that while the pace of inflation may be slowing, consumers are still feeling the pinch on their wallets.

This shows up in credit card debt, which is $6,218 per borrower on average, up 8.5% from last year in 2023, according to Transunion. Learn more about how consumers are dealing with debt.

We welcome Dan Miley, who is Discover Personal Loans?

Vice President.

OK

So why are we seeing credit card debt pile up to this level?

What are the main factors you can review?

Yes, Brad, thank you for having me.

So you said I think inflation is the main reason.

Um Discover Personal Loans conducted a survey last year and found that the number one reason consumers feel stressed is inflation at 58%.

Well, they're seeing higher prices in almost all areas of life because of inflation, and in some cases, they're using debt to finance it.

So with that in mind, I mean, we're starting to talk now, if someone's debt is mounting, where do they need to start looking at a loan to be able to pay off that debt minus that debt?

What should the assessment be?

Your, your previous guests are talking about the different interest rates they might have on different types of debt.

I think that applies here as well.

Well, the average annual interest rate on credit cards in 2023 is 23%, up from 16% during the pandemic.

Well, in comparison, a personal loan can offer them the opportunity to refinance their debt as low as 6.99% if they have outstanding credit.

So if someone has good credit and can convert higher-cost debt into debt with a lower fixed interest rate, there's an opportunity to save a lot of money.

Is there a general rule of thumb for the percentage improvement a person should look for when consolidating debt?

I don’t know if there is a specific improvement percentage.

Well, one of the great things about a personal loan is that you can check the interest rate without affecting your credit report so you can explore your options.

I believe choice is a consumer's best friend, especially those trying to manage debt.

So I encourage people who think they might have a chance to save to go out and figure out what interest rates they can actually get and explore their payment and interest rate options.

In terms of the relationship between Discovery Finance and its clients, do you also have some tips on how to pay off debt and where to stop spending.

Maybe because it's another part of the equation, making sure you don't keep adding to it.

Yeah, that's right.

Everyone needs a budgeting strategy.

Well, the 50 30 20 rule, 50% for needs, 30% for wants, and 20% for savings, is a very popular strategy to try to increase your income as well.

Um, but that's the hard thing to do.

Therefore, people sometimes neglect to ensure that you are getting the best deal on your debt.

Well, so my advice would be to explore all your options, develop a good strategy to manage it, spending is of course the first consideration.

Um, but go out and look for any opportunity to refinance at a lower rate and uh our producers probably hear me ask this question all the time and they're getting ready to throw a stapler at the control room monitor when I say that.

But we've seen the way consumers are described change so frequently, and over the past year, from consumer resilience to consumer health.

Now, we're hearing from some retail CFOs and CFOs that consumers here are relatively stable.

If consumers spend at this frequency or click or swipe their credit card.

What does this tell us about the consumer situation?

From a discovery perspective?

I think we saw before that, as you mentioned, the Bureau of Labor Statistics, um, consumer price index was better than it had been in previous months.

Well, that doesn't help the consumer.

Therefore, they are still seeing the impact of higher prices.

This is what it tells us about consumers.

Well, usually they prefer to avoid debt.

Well, I don't think people who are in a situation of managing debt should be ashamed of it.

Well, they need to be able to have an honest conversation and try to get themselves out of the situation.

Well, there are some positives here.

We know that 80% of clients who use personal loans to consolidate debt say they feel less stressed about their financial situation.

Therefore, there are ways to better manage their debt and achieve their overall financial goals.



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